Felix Salmon

The no-news market move

By Felix Salmon
April 20, 2009

It’s a bad day in the stock market, with the Dow down more than 3%. But “early March levels”? No. In early March, the Dow was a good thousand points lower than it is now, and the XLF index of financial stocks, which is trading at just over $10 today, was somewhere below $7. So let’s keep things in perspective, here: we’ve had a big run-up in stocks over the past few weeks, and it’s only natural that they will pull back occasionally.


Even weirder is the idea that some radio-station nutjob in New Jersey actually moved the market with his report that the bank stress tests were finished, and looked “very bad”. Says Bloomberg:

The Financial Select Sector SPDR Fund, an exchange-traded fund tracking banks, brokerages and insurers, fell to $10.62 from $10.75 in six minutes after FlyOnTheWall.com cited Turner’s blog post at 8:14 a.m. in New York. At 8:30 a.m., FlyOnTheWall advised readers to disregard the earlier story.

What Bloomberg doesn’t say is that the fund in question wasn’t trading between 8:14am and 8:20am: the New York markets are closed then, and weren’t going to open for more than an hour. Pre-market trading is always thin and volatile, and prices can move for any or no reason. Besides, when markets did open, an hour after the news emerged that the blog entry was bullshit, XLF had fallen even further, to $10.59, and it’s been tumbling for most of the rest of the day as well. So it’s a bit much to ascribe any move to this one story, especially when, as Ryan Avent points out, the author of the blog claims to have found stress-test results for HSBC, a bank which isn’t even being tested.

What we’re seeing here is the result of a very common bias: if a stock or an index moves, every journalist’s first instinct is to look for some kind of news which might have moved it. If there’s no obvious news story which might be responsible, a lot of journalists will then start citing non-obvious news stories instead, or even news stories which, by rights, should have moved the market in the opposite direction.

The fact is, however, that especially in these days of extremely high volatility, most stock moves don’t have a reason, especially not a news-based one, and that it’s profoundly silly to look for one — nearly as silly as it is to confuse a one-day fall in indices with a return to multi-decade real lows.

And the lesson of all this? Don’t believe what you read on blogs — but don’t believe what you read in more mainstream journalistic outlets, either. They’re all prone to hyperbole, and the best thing you can do most of the time is simply ignore all of it, and go for a nice walk instead.

3 comments so far | RSS Comments RSS

Actually, etfs and NYSE-listed stocks can trade in great volume before 930am on ECNs.


I certainly haven’t found any news supporting today’s market drops either. Looks like a noisy opportunity for investing!


Gee, Felix. If I’m not supposed to believe what I read on blogs, why am I reading yours? :)


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