Have ‘Animal Spirits’ Taken QE’s Place As The New Fuel For The Bulls?

President Trump has summoned up ‘animal spirits’ which seem to be taking more and more credit (or blame depending on your market bias), for the bull market.

Here’s one way to keep your eye on them, so they don’t catch you by surprise.

Additionally, this week’s video (below) will show you ways to let the market, not animal spirits, drive you to the best trading opportunities.

Over the last several weeks I’ve noticed more and more analysts justifying the continuation of the bull market with a term that has not been used for quite some time, “animal spirits”.

So what are “animal spirits”, and how do they affect the market and the economy?

The term was coined in 1936 by the famous economist John Maynard Keynes, to describe the psychological forces that partly explain why the economy does not behave as predicted by classical economic theory. It’s important to note that classical economic theory was grounded in the belief that “economic decision makers” (people) would make rational decisions.

In other words “animal spirits” is how one of the fathers of modern economic theory described the fact that economic decisions are often based on emotions, intuition, and irrational behavior.

I’m sure such a conclusion doesn’t come as a surprise to most of you reading this post, but be sure to keep that definition in mind when you hear an analyst, economist, or commentator use ‘animal spirits’ as his rational explanation for why the economy and or market will continue to trend higher.

To be fair, animal spirits, could be considered just a fancy term for “optimism” which is more easily recognized as valid reason to expect economic growth and rising stock prices. And as it turns out, there is a very real measure of consumer optimism. It can be found inside the University of Michigan’s monthly Consumer Sentiment report.

Below you’ll see a chart of the monthly Consumer Confidence data in which you’ll see a rather steady up trending purple line that represent the level of confidence that survey respondents have in current economic conditions.