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There's No Reason Why Stocks Are Down Today

Sep. 22, 2011 1:26 PM ETSPY, DIA, QQQ85 Comments
Felix Salmon profile picture
Felix Salmon

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 article was written by

Felix Salmon profile picture
Felix Salmon is a senior editor at Fusion

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Comments (85)

Mr Salmon is capable of doing some decent reporting. Unfortunately he refuses to maintain a hard news perspective in his articles.

His opinions are worthless.

For reasons that escape me there are dozens of serious responses to this thinly disguised cry for help.
ParkerStorm profile picture
I must come back to thank the nice person that sold me their shares of Total (TOT) on Friday for only $40.25. I put in the buy order just fooling as I would never ever believe this stock would hit that low. Lower than during the " Great Recession". It bounced right off of the low of $40 and went back up. The dividend yield listed on Ya-hoo Finance of $1.37 3.3% in totally incorrect. The actual dividend now paid quarterly instead of semi-annually is $ 3.24 or 7.9%. This can be verified on MSN money and / or Fidelity. My point is this stock like many other great stocks are getting trashed for no reason except people are loosing their hard earned monies from selling out of mutual funds and dumping perfectly good stocks. If 2008 / 2009 taught me one thing was if you have stock in a really good company that pays a nice dividend do not sell out. As of Friday September the 23 Ativo Research has a Strong Buy rating on TOT with a mid range price target of $57.97 and a upper range target of $66.09. Just throwing this out for anyone that might what to check it out. If one is looking for a entry point in this stock this might be just that time. I am long TOT, COP, & SDRL. Good Luck!
NormT profile picture
24 Sep. 2011
The present insider activity is taking advantage of the developing markets prices in southeast Asia. None of the countries, especially China, have mature financial markets. The populace do not have enough accounting and financial knowledge to maintain a stable market. Each time Wall Street has a drop in market prices, the southeast Asian market prices drop. This is a way for the wealthy to get cheap investments. The present investment in foreign projects are supported by the tax benefits the rich are receiving. The FED intervention is necessary to protect the economy. This is another bald face lie to protect the rich. They are going to invest abroad through poor wages for the foreign worker to get their profits. At the time, the rich want the lower and middle classes to purchase their imports. How many bad products have been imported that have caused large losses? i.e. Wallboard from China that is toxic and food products that have no taste. The purchase of a computer produced in China for 5,000 yuan in the Uniited States that is at the same time sold in China for 12,500 yuan. The reason is the fixed costs are charged on the product sales in China. This reduces the Chinese production that can be consumed and retards the growth of jobs for the Chinese worker. What one sees is the large cities, but one does not see the hardship of the migrant Chinese workers in the large cities. Why should the Chinese worker support this abuse from American Companies?

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
i argue the 'reason' is almost never the one that the daily press purports it to be. The 'reason' here is that the market was artificially inflated and now it is regressing to its mean by returning to the base state of last year (@ 1060) when the 'end of the recession and accelerating growth story' comboed with qe2.

The first was a lie, the second a huge mistake and scandalous disservice to our country.

However, once it achieves the 'deepwater horizon' level of confidence again, the loss of cap and leverage will likely cause more catalytic news (e.g. bank failures government defaults)

i have learned 3 things in two years.

1) never believe the openly reported reason for change
2) fundamental analysis is total garbage and has nothing to do with the current market (though it is useful in a secular bull market RIP 2002-2007)
3) price targets are akin to the signs used car dealers put up in magic marker; they are being set by large holders of stock who are their own salesmen in a massive conflict of interest and every single one of them is nothing more than an optimistic 'pump and dump'
oh and i should add; 4) the concepts of 'investment' and the 'stock market' are antithetical.
Jeff Pierce profile picture
There is always a reason. We just don't know it until after the fact.
LamontBlackDog profile picture
Charts, graphs, and analysis makes the market look scientific, but it's really emotion that drives it.

When people are scared and anxious, they sell.
Herr Hansa profile picture
Felix, congratulations on going against the grain on this one. There was indeed a large chunk of money taken out of equities. The funny thing is that an even larger chunk went into Treasuries. Take a look at the 10 year and 30 year, and you will see where the money went.

The problem I see with that play was voiced in a research note from one of the primary dealers. That note suggested that the Fed would need to buy 90% of long dated Treasuries over the next 8 months. First off, that was incorrect, in that the Fed needs to buy slightly less than 1/3 of long dated Treasuries. The second thing is the assumption that the Fed needs to sell short dated Treasuries to cash, then use the cash to purchase long Treasuries. Since Treasuries are still accepted as collateral, the Fed could simply do the equivalent of Treasury note swaps, paying for longer notes with short dated notes. My feeling is that anyone jumping on this late, while yields are massively low, is going to get burned.
Some of the stuff here is a amazing. I guess only a few saw the top in May, the incredible textbook "head & shoulders" bear in July and the moving averages. The majority of stocks just follow the broad market.

As far as the broad market and the economy - there is zero confidence among the public. The investing public is fed up with HFT, fat fingered flash crashes and volatility.

Does Japan's chart look this good? No
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.
sean.parmelee profile picture
You have a disturbing and poisonous view of history and of the German people. I wish the dislike button were still here.
Wow. What a rant. "Bite the bullet."

Why should German taxpayers bailout union and government workers in Greece? The whole idea of the EU and Euro was a huge mistake. Time to dismantle it.

Countries with no fiscal discipline and no manufacturing base given a credit card or a blank check to spend whatever they want. Those countries then expect countries with fiscal discipline to pick up the tab? Yeah that works really well. Creating more debt to solve a debt problem always works.

Geithner was laughed at because he talked about austerity while Bernake is printing endless dollars. No one takes them seriously anymore.
sean.parmelee profile picture
Didn't you get the memo? The PIIGS are Hitler's fault.
vandal6 profile picture
A triple-top chart; ten-years of zero growth; no statistics; no analysis. If I wanted to read this type of article I could just turn to the opinion page of the NYT.
Felix is right on target. The market goes up. The market goes down. Not a big deal we've seen it for decades.The manic panic attitude reinforced by TV type doomsayers is frightening the poor retails into submission. And those with cash on the side to buy the bargains benefit. Its always been the case from day one and now even more so in this telecommunications got to have it now or else age.
22 Sep. 2011
Please buy 'em - i've got stox to go. The fed is not the issue - bank recapitalization in Europe (deleveraging) and acutely higher probability of recession in US is the issue. The question is not why stox are down today but why were they up last week on weak macro data and no good news from Europe? You do a disservice to investors by touting this belief that stox go up forever (just like housing). You can buy the us dollar here and if you are long term - buy corporate bonds. Stocks are for stock jockeys... Good luck.
seul profile picture
22 Sep. 2011
would be good to show also NKY:IND just to keep it fair ... every coin has two sides ... apart from that, my opinion is that this is the start of a decrease in living standards across the developed regions of the world ... that's the only way how to balance out this mess ...
1red profile picture
Stock market is a voting machine in the near-term, a weighing machine in the long-term.
Brasada profile picture
Is the title of the article serious or just a headline grabber - the article has no semblence of logic.
Since the 660 bottom, one thing has driven the stock market; the belief in permissive government action. Low interest rates, bailouts, stimulus, monetization of debt etc.

Since 9/1/10, only one thing has moved the market; QE. That was the only name of the game.

What the meeting yesterday confirmed was that there would not be another round of QE. So, we return to the state we were in before QE.

News and IMF data, unemployment, phil fed that data moves the market when it is secular bull. The only data that is relevant now to the big players is how much support they can expect from governments and institutions like the FED.

The rally of the previous seven days was an attempt to prepare for a huge rally in the wake of QE3 that had been anticipated for months. It didn't happen. Now the market goes down.

However, there is still the yield trap; inflation is actually quite high and fixed rate investments yield an inflation negative result. So risk is the only viable answer; and as we have seen three times since 8/11/11, the market just goes back up.

You can correlate every large fall to a subsequent massive gain in the top 20 interday/top 20 drops of all 3 indexes (wikipedia).

However, after ignoring horrible economic news for months, in fact, after ignoring the reality for three years that:

1) that the recession never ended
2) it was caused by massive leverage and synthetic bets (swaps, cdos, etc) on 'real' assets in the financial sector
3) the amount of leverage and synthetics is equal or greater today to what it was 3 years ago.
4) the big boys made as much money shorting the fall last time as they will this time and it will make them unstoppable.

after ignoring bad news for months, it will break to reality, and the catalytic news will not be the failure of the 41st largest economy in the world, but more likely the death throes of a massive european or american bank.

I'll give you a hint which one i think. . .its the big one with the lowest per share price? C reverse mergered its way out of confusing the answer to this riddle.

Good luck.

"I'll give you a hint which one i think. . .its the big one with the lowest per share price? C reverse mergered its way out of confusing the answer to this riddle."

Did you mean reverse split? I think so.
Venkata Subbu profile picture
Actually, I think Nathaniel Popper of the Los Angeles Times got it exactly right. He says:-

"The Federal Reserve said to buy bonds — and investors worldwide complied at the expense of nearly every other investment."

Of course the rest of the article flounders around looking for a reason.

Bernanke just issued a put on bonds making them the safest investment around until the 400B is gone. Better than cash or gold. Last year the Bernanke put was on stocks - the strategy was to buy S&P futures. REITs should also do well for a while.

Varan profile picture
It's all my fault. I discovered pair-switching trading strategy - the simplest and the most rewarding strategy ever devised by anyone - early in the year, and for all the pairs (SPY,TLT), (VTI,TLT), (EFA, TLT), (DBC,TLT) and (OIH,TLT) the strategy has been in TLT since July 9, 2011, and has yielded stupendous returns - almost 38% to 48% for the year.
"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."

BTW, I wouldn't be so dismissive. For short term traders, the daily and weekly closing numbers *are* significant: it's the price level at which people are willing to risk being unable to trade for hours and even days (I mean, you can hedge your risk, if you also trade in the futures market, but not everyone trades both in futures and stock market).

When people say they are willing to buy/sell something at some price, *knowing* that they can't sell/buy it back for a period of time, that should mean more than when they buy/sell something knowing that they can immediately turn around and sell/buy it back if things don't appear to go their way.
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