JPMorgan: Buying the Stock, Not the Sector

Over the last couple of days, the market’s reaction to the bad news surrounding the housing and financial sector is, I believe, quite insightful about the psychology of the market and the reason for the substantial daily swings. The main concern seems to be the fear of another mortgage underwriter or investment bank going under. I can’t help but realize how the market psychology about this so-called “bad news” is extremely similar to late 2006/early 2007, at the height of the M&A boom; only this time, market dynamics are reversed.

You might be surprised how one can say that a market which refused go down despite the burst of the housing bubble, and a market which refuses to pick itself up despite a host of economic incentives, might be similar. Well, the similarity lies in the fact that traders seem to trade sectors, not individual stocks.