There's No Reason Why Stocks Are Down Today

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There’s a lot of uncertainty in the global economy, and that’s the kind of thing which makes stocks volatile. This morning, we’re seeing that volatility express itself, with global stocks all falling and US stocks down about 2.5% from where they closed yesterday.

But let’s not kid ourselves that there’s any particular reason why global stocks are falling. And especially, let’s not try to invent some spurious reason for the fall, be it broad and inchoate (“global economy fears”) or weirdly specific (“Federal Reserve pessimism”).

It’s may or may not be helpful, here, to check out the price-and-volume chart of the S&P 500 over the past few days.

You see that little wobble in the mid-afternoon yesterday, before the high-volume sell-off at the end of the day? That was the immediate reaction to the release of the FOMC statement at 2:30pm. The big plunge, on unusually high volume, started about an hour later. And the big drop at the open today was much more notable in price terms than it was in volume terms.

It’s silly to think that the decline in stock-market prices was a rational reaction to the FOMC statement. If the FOMC is more pessimistic than the market expected, that’s normally a good sign for markets, since it implies that monetary policy will remain looser for longer. The market cares about the Fed because the Fed controls monetary policy. And so Fed forecasts are important because they help drive that policy. No one revised down their growth expectations as a result of the FOMC statement.

As a general rule, if you see “fears” or “pessimism” in a market-report headline, that’s code for “the market fell and we don’t know why”, or alternatively “the market is volatile and yet we feel the need to impose some spurious causality onto it”.

This kind of thing matters — because when news organizations run enormous headlines about intraday movements in the stock market, that’s likely to panic the population as a whole. They think that they should care about such things because if it wasn’t important, the media wouldn’t be shouting about it so loudly. And they internalize other fallacious bits of journalistic laziness as well: like the idea that the direction of the stock market is a good proxy for the future health of the economy, or the idea that rising stocks are always a good thing and falling stocks are always a bad thing.

Or, most invidiously, the idea that the most interesting and important time period when looking at the stock market is one day. The single most reported statistic with regard to the stock market is where it closed, today, compared to where it closed yesterday. It’s an utterly random and pointless number, but because the media treats it with such reverence, the public inevitably gets the impression that it matters.

Here’s a more useful stock market chart, for the vast majority of people for whom the stock market only matters as a long-term investment:

I’m not going to try to read any great narrative into this chart. But if you want to explain stocks to the broad population, this is the sort of thing you should be showing them. Rather than useless and irrelevant news about what happened to stock prices this morning.

This article was written by

Felix Salmon

59.61K Followers

Felix Salmon is a senior editor at Fusion

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Why should the interest for savings accounts of the lower class be penalized for the insider trading by the Republican Judges and the money hungry Boards of Directors? No person deserves more than $1 million a month in salary for a being the front man for a corporation that pays for most of their daily subsistance. Pass laws to make salaries more than $1 million a month be approved by the stockholders. Also the interest rates for non-market savings accounts of the poor should be at least one tenth of a percent or $1.00 per thousand in a savings account per month on money needed for unexpected situations.

The actions of the Republican Party and the Tea Party are the same as the Nazi parties disruption of government in the 1930s and the burning of the Richstag to support take over by fundamentalists (conservatives). Hitler's speeches to the Rheinland Rotery clubs to suppport increased production of war materials could have been given by any national leader. All that was needed was a change in the 'nation' and the 'nationality'. Hitler used the phrase, "The Reich would last a thousand years." Churchhills paraphrase was, "If the empire lasts a thousand years, may this be its finest hour. The Fundamentalist Christians demand that all Christians think exactly like themselves. The Religion of Abraham has been translated so many times for so many purposes, some purposes not recognized. Attending Conservative German Christian churches in America and being accepted requires that one swear to their form of Christianity, which is similar to the Natzi requirements in the 1930s. Why should the conservativisn of fringe area Christianity be forced on all Americans?
NormT, MS Accountancy, Financial; Enrolled Agent; MSG(AOR)Ret, French and German fluency

The market sell off today is a result of Europe specifically the sluggish way and the rather inept way the Europeans are dealing with debt and putting their banks at risk.

In a nutshell we have Germany acting the roll of a bully. This is not going down well with other EU nations. Merkel's attacks on Greece while perhaps truthful are in very bad form for a neighboring state. As the former Chancellor of Germany told Merkel, the history of Germany during WWII is still fresh in European minds and vicious attacks on neighbors is not acceptable. He stated that Germany had to avoid that bullying conduct at all cost and be accommodative.

There is no question that German has never really paid for the damage it did during WWII. They have repudiated it in their Constitution but they don't feel any financial obligation for the enormous damage they caused the whole European community.

At this stage of the endless European inaction the rest of the world is getting tired of Germany complaining about having to pay to shore up the EU. Germany literally bombed and killed it neighbors and cost untold damages from their wild conduct for which they have never paid damages. Well the time has come to pay.

The DAX has dropped about 40% so the Merkel inaction has already cost the German investor billions.

Geitner went to Europe to explain the need for immediate and real action by the Central bankers and Europeans basically shunned him. Whether you like Geitner or not, his mission was simple to tell the Europeans to quit messing around and do something because they were creating risk for the rest of the world. How? The large EU banks own lots of US equities and mortgages. A disbalance could trigger sell offs in America and it could spread.

This is not a recession but it is now a situation of pure risk extension. When the DAX is knocked down, the US markets follow.

I realize the German people may not like bailing out other EU nations especially Greece who looks so undisciplined. However, the real issue is that German does in fact owe the other European nations a serious debt of respect and insane damage from the war and if they can't be respectful then they can be pryks but start writing checks. Germany was a society that went berserk. The EU is an organization that unifies and forgives but Germany needs to comprehend the price of forgiveness and belonging and Merkel needs to let somebody else handle the process because she is abrasive. Germany may as well face the fact they are going to have to pay more than they want. That is the legacy of German conduct during WWII. Personally I am shocked the country was even allowed to exist after the war, let alone allowed it to unify. But that's the burden they earned but they have never really paid for it. Its now time to pay.

The message to Germany at this point and the EU financial ministers is that your inaction has made matters worse for the globe and has already torn your own markets to shreds. Germany needs to dispose of its arrogance and bite the bullet. An unwillingness to do this will in fact destroy not only Greece but every EU nation that shares the Euro including Germany and its banks.