Pretty much every day, in pretty much every newspaper in the country, there is a story that goes something like this [taken from todays WSJ]: "Yesterday, the Dow Jones industrials fell xxx points to yyyy on new concerns about interest rates and anxiety over North Korea's missile tests." Or the Dow rose, due to "increasing optimism about prospects for peace in the Mideast." Or whatever. It's complete and utter nonsense. The market did in fact fall yesterday. But how could anyone possibly know that it was due to "concerns about interest rates," or "anxiety about North Korea's missile program"? Hundreds of thousands -- millions -- of individual trading decisions go into determining whether the market goes up or goes down on any given day. I don't get it -- I really don't. Are we really so desperate to believe that we can explain everything that we take some sort of comfort from stories like these?
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As quoted in "Capital Ideas" by Peter Bernstein.
Daniel Dresner links to a Bloomberg article about the financial markets reacting to the N. Korean missile tests:
Even brainy people with Doctorates From Famous Schools believe this stuff!
For the reason the stock market goes up or down in most days, your guess is as good as mine.
A case in point is when the employment figures come out.
If there is less unemployment, and the SM goes down, it is because "...the economy is too hot, and there is a fear the Fed will raise interest rates". If the SM goes up, it is because "...the market is encouraged by the robust economy".
Conversely, if there is more unemployment, and the SM goes down, it is because, "...the market is disappointed in the employment figures". If the SM goes up, it is because, "the economy is taking a healthy pause, so the fed is unlikely to raise interest rates this next go 'round".
What a bunch of BS
Also, the changes in the market's direction intraday do not necessarily reflect "millions" of individual trading decisions (unless you count omissions to trade, which really isn't fair). The price of a stock or the market changes based on marginal trades. A few big buyers or sellers can cause the chart to zig or zag fairly specifically.
Lastly, remember that there is actually a lot of discussion that goes on in the market. People rarely telegraph what they are going to do or why in advance, because that costs them, but they often give a reason after they have done their trade. If the stock of an individual company moves in a surprising direction, it is possible to call the market-makers and ask them what is going on. They will often be able to tell you in detail.
My problem is that on a daily basis, except when there is a big move, each commentator often has a different rationale for the day's movement.
There was an article by Daniel Gross in Slate arguing that the Dow rose 127 points on October 25, 2002 because the late Senator Paul Wellstone died that day. Gross noticed that there was no visible market trend that day until the news of Wellstone's probable death around 1:30 pm, when it was reported that a private plane carrying him had crashed. The Dow then began to rise and continued to rise as it became clear that no one in the plane had survived and the event was reported in more and more outlets.
Gross connected this to the increased likelihood of Republicans re-taking the Senate. I am not at all sure of this since Minnesota usually votes Democratic anyway, or at least used to do so. Wellstone's replacement in the Senate race was Walter Mondale, who certainly had a splendid reputation among liberals (even if he was a bore). Why assume that Republican Norm Coleman would win?
Yes. Most humans want order, not chaos. Even if order is a fiction, even if it defies all reason (perhaps all the better that it do so). A person sees such an article and is comforted that someone knows why the market went up (or down). One of the most amusing conceits of modern man is that myths are a relic of our more primitive forebears.
"The Dow (rose/fell/other descriptor of varying hysteria) today on news that (insert todays headline here)."
Applies to the price of any commodity, such as gas or bread as well.
I bet you could even use this technique...
"Todays temparatures (insert hysterical descriptor here) as a result of (insert todays headline here). Bush blamed.
Sulzburgers got nothing on me.
Hey. It's on TV. It must be true, whatever "it" is.
Why do they put it on TV? Hint: 24/7 broad casting, dead air is a bad thing, if it bleeds it leads, "give me bang bang."
What is it actually? Remember hubcaps? Think of a coupla rocks between the hubcaps and the wheels as the car rolls down the street.
...Of course, it could simply be an illustration of the old maxim...give a bunch of monkeys typewriters and eventually they will produce x.
Fascinating.
JewishZionistNeo-Con conspiracy, trying to divert attention from the fact that they control the market.Trade through a few numbers (e.g. unemployment Friday) and news events; the reactions will tell what the market fears.
Now, some of these market reactions (for example the apparent correlation between gold and oil these days) don't objectively make a heck of a lot of sense...but they're self-reinforcing for a time. The operative term is "market regime."
(And, yes, traders can and do kick the market around in the absence of any news.)
Individual stock movements are not random. That does not mean, however, that the movement in "the market" can easily, or correctly, be explained by 1 or 2 events of the day. Individual stocks can. Sectors nearly as often. The entire market rarely.