Posts Tagged ‘Wall Street’
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The top-of-the-page articles today (e.g., in the New York Times) are all about strong job growth, lower unemployment, and higher wages.
All true. But, as Neil Irwin cautions, we should hold the fireworks. His view is not there is a “soft underbelly,” but that “this halting, sluggish recovery has taught us anything, it is to not let our assessments of the economy be driven by hope, but rather by sustained and credible improvement in a wide range of economic data.”
My view is that—notwithstanding recent job growth, falling unemployment, and higher wages—there is still an enormous gap (as reflected in the chart above) between the wealth workers are producing and what they’re receiving in compensation.
That’s why the stock market continues to soar (this morning, the Dow broke 17,000 for the first time ever), benefiting a tiny minority at the top, while the 99 percent continue to fall further and further beyond.
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Yesterday’s dramatic sell-off—starting on the NASDAQ, which sank 3.1 percent, its worst day since November 2011, and then taking down the Dow Jones Industrial Average, which fell 1.6 percent, and the Standard & Poor’s 500-stock index, which fell 2.1 percent—which has continued this morning, has been accompanied by a wide range of “explanations” from so-called experts. (You can find a good sampling here.)
One of my professors in graduate school explained that 10 percent of movements in the stock market may be based on “real” events, while the other 90 percent stemmed from other factors. But no one understands which portion is the 10 percent and which the 90 percent.
Barry Ritholtz offers a similar perspective:
Whenever we see any sort of disruption in markets an explanation usually follows. The headlines will explain that “Markets are going up/down because of this good/bad thing.” News anchors will solemnly intone why the volatility is significant and what it means for one thing or another.
None of these casual explanations can withstand close examination. They are often things that have existed for months or years, and so can’t account for what happened yesterday.
Stocks are fully valued, and have been for a while, so why is it that valuations suddenly matter after not mattering at all? The market for initial public offerings is too hot? Wait, the Federal Reserve is going to end quantitative easing, something it has been warning us about for two years? Now it suddenly matters?
Of course, all of these narratives serve a singular purpose: They give the appearance of meaning and rationality to actions that are meaningless and irrational. The daily action in the markets is a form of noisy, random, Brownian motion. If you are looking for a clear reason as to why stocks did what they did, then you are in the wrong line of business.