As we draft this first edition of SMG's Spring semester Week in Review, we at SMG hope that your holidays were enjoyable and that your Stock Market Game kickoffs are going smoothly. At the time of this writing there are only nine days, 3 hours, and 20 minutes to go until the Super Bowl kickoff between the old school titans: the Colts and Bears. We'll have more on the big game later, but first, the week that was.

We're 51 months into a bull market that is probably due for a correction (that's a Wall Street understatement for 'crash'), but the economic data give us no indication that a precipitous decline is in the offing. There's an old joke in financial circles that says the stock market has predicted nine out the last three recessions. The gist of the quip is that the stock market is a poor indicator of future economic activity. With stock investors rosily betting on a Goldilocks economy (i.e., the economy would slow down, yet avoid a recession, and everything would be 'just right'), investors yearning for a crystal ball looked to the bond market.

For several months as equity traders peddled their Goldilocks scenario, bond traders inverted the yield curve, which means that long term bond yields were driven lower than short term yields. So what? You ask. I answer that this rare phenomenon is almost always an indicator of a recession and it is a bet by bond traders that the Federal Reserve will lower interest rates. A seemingly rebounding housing market and other positive or neutral economic data blew the bond market gadflies out of the water this week. Having bet the wrong way on the economy many of the bond-market-as-recession-predictor faithful lined up at the barber for a humbling haircut (teachers from last semester may remember that a "haircut" is a loss - usually a big one).

So what does that mean for this prescient stock market that finally got a recession prediction right? They're selling. The fear on the Street has reversed itself and now investors are worried that the Fed will be spooked once again by the inflation bugaboo and raise rates instead of remaining neutral. Most believe they'll keep rates unchanged at the next FOMC meeting but what they'll do at the meeting after is anyone's guess, which prompted many investors to take some winnings off the table.

The advice for students? Stick to the fundamentals: do your research, look for good companies with good products and diversify your holdings. In the SMG's Teacher Support Center there's a great lesson entitled, "What Causes Stock Prices to Change" It can help you and your students interpret current events and how they affect the market.

And now, as promised, we go from the Bulls and the Bears, to the Bears and the Colts. Knowing little to nothing about either team I think the Colts will beat dah Bears by 11 points. Until next week....
This article was written by a staff member of The Stock Market Game.

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