“Mood and momentum” is what’s driving the market right now, Professor Aswath Damodaran of NYU’s Stern School of Business told CNBC International TV in a recent interview. Investors are looking at the macro environment rather than individual companies, he said, likening the current sentiment to a home inspection at a house on the Florida coast in the middle of the hurricane. The first thing the buyer would ask the inspector is how well the house will withstand the hurricane, not when the air conditioning unit was installed.
Value also has very little play in the current market, Damodaran, who is also known as the Dean of Valuation due to his expertise on valuation, told CNBC, pointing to the shift at the end of September, when rumors about Credit Suisse going under amidst other bad news should have brought a drop in the market, but instead caused “a very different movement.” He advises investors to be aware that the day-to-day up-and-down shifts in the market have little to do with fundamentals and more to do with sentiment. And since there is no clear path of where we are actually headed, the volatility can be expected to continue.
Technical aspects could also be affecting the market’s movement, with much of the trading being algorithm-based as opposed to sentiment-based. “It’s all about where do people feel comfortable coming into the market and leaving the market,” Damodaran said, and many traders rely on charts because they can offer insight on “mood and momentum” that fundamentals can’t give. But eventually, fundamentals will return, and investors should be ready for that day, Damodaran concluded.