How do financial columnists know what causes the stock market to rise and fall?

I doubt that financial columnists really do know what causes the stock market to go where it goes. I don’t think they instantly take a random survey of “investors” to find out what they are thinking at the moment. For one thing, a very large fraction of the transactions are now handled by computer algorithms that conduct trades in milliseconds or microseconds. While people did write the code that underlies those algorithms, there are so many computer programs, and so much real-time data that changes so fast, that nobody can predict what will happen in general at any given time.

(In the case of insider trading, yes, the insiders can guess pretty well what will happen to one type of stock or bond when a certain event becomes common knowledge; they then capitalize on that private knowledge, at the risk of being found out and fined. But that’s not the same thing as knowing what’s going to happen on the NYSE or any other such market.)

Nonetheless, we get prose like this:

“Investors concluded that interest rates would rise faster than they had anticipated, almost certainly in the United States, and perhaps eventually in Europe and Asia, too. They yanked their treasure out of stocks and entrusted it to safer repositories of wealth like bonds and cash.

“A wave of selling commenced in New York on Friday, continued in Asia and Europe on Monday, and then completed its trans-global journey with a sharp drop where it had all started.”

Maybe. This following paragraph makes more sense:

“Even as unemployment rates have lowered drastically in Britain, Japan and the United States, companies have continued to find new ways to make more products and sell more services without paying more to their employees. This has been a major source of unhappiness among working people, and a subject of consternation among policymakers.”

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Published in: on February 7, 2018 at 10:17 am  Comments (3)  

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3 CommentsLeave a comment

  1. I know the answer to the question in your title!! They don’t!

    The vast majority of the change in stock market indexes is noise. We will see if the most recent “plunge” in the markets is a real or “noise” event by whether those indexes return to near their previous values in the next few weeks.

    Most trading is not don’t by frantic stock owners anymore, it is done by algorithms built into computer software. As a general rule most people over react to changes in these indexes, and algorithms by means of positive feedback loops have exacerbated this tendency.

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  2. Does the name Mercer come to mind? That is the person behind all of this. He is Oz behind the curtain. Pence is his puppet and Trump the court jester.

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  3. OT but has the USA gone completely bonkers?
    https://www.economist.com/news/united-states/21736102-low-teacher-pay-and-severe-budget-cuts-are-driving-schools-brink-whats-matter

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