Counterparties: Why did markets move?
Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com
Today, the Dow Jones ended down 1.82% and the S&P 500 was off 1.44%. Of course, the media needed to come up with a reason why.
Here’s a video from CNBC this morning that’s just over five minutes long but offers a dozen reasons why stocks are down:
Concerns about the strength of corporate earnings, particularly multinationals like DuPont, IBM and McDonald’s; increased selling by liquidity-seeking Europeans; China’s slowing economy; Wilbur Ross decided it might be better to invest in Spanish banks next year; Spain’s GDP continues to shrink; The short-selling ban in Spain expired yesterday; Obama used the word “sequestration” during last night’s debate, reminding people of the fiscal cliff; Fed policy continues to keep assets prices at some level above their fundamentals, but the fundamentals are worsening; Each round of QE has been decreasingly effective; The technicals of the S&P 500; Romney might win the election; Apple’s roll out of the iPad mini might be underwhelming.
At the NYT, Nathaniel Popper chalked the decline to falling corporate revenue and profitability. The WSJ’s Chris Dieterich also points the finger at earnings, but only because they “refocused the attention of investors on the fragile global economic recovery”. Bloomberg’s Rita Nazareth adds falling commodity prices. Then again, maybe it was S&P technicals, and the fact that the index fell through the 1420-1425 range.
Alternatively, said CNBC, maybe it was the Fed! If Ben Bernanke is propping up the markets, then Andrew Ross Sorkin and Binyamin Appelbaum contemplating what the Fed might look without him might be enough to roil markets. (Although this possibility was also contemplated four days ago.)
Even if you think stocks got “crushed“, you can have positive causes, too. Tech stocks, we’re told, were up on strong earnings from Yahoo, and transportation rallied because of the earnings report at Ryder System.
All post-hoc explanations of the day’s trading are vulnerable to the so-called narrative fallacy. Here’s Nassim Taleb:
Explanations bind facts together. They make them all the more easily remembered; they help them make more sense. Where this propensity can go wrong is when it increases our impression of understanding.
Or, more succinctly, “you’ll never learn anything from a market report”. – Ben Walsh
On to today’s links:
Hedge funds are currently in love with Greek debt - WSJ
Berlin is now the unofficial capital of Europe – FT
EU backs financial transaction tax – BBC
Britain has left the European Union in all but name – Telegraph
America’s doctor shortage: In Las Vegas, it can take 6 months to get a check-up - Bloomberg
Why market dynamics aren’t enough to support a health care market - Synthenomics
“Colleges may in some cases be pricing themselves out of the market” - Bloomberg