Over the past week, the media have been quite ecstatic over the performance of the stock market, i.e., its rise to, and over historic levels. Of course, with the exception of the financial oriented media, the emphasis by the popular media has been on the Dow Jones Industrial Average – which is the performance of only 30 stocks. The more valid and more closely watched index of “stock market performance” is the Standard & Poors 500, i.e., the performance of a broader base of stocks (500 Industrials).
The perceived value of the stock market and its behavior, is reflected in the indices. Notwithstanding the efficiency of the stock market, its behavior is, nonetheless, irrational.
It is a mystery how the daily stock value of any good American company can be affected by the military exercises of the Iranian Republican Guard in the Gulf of Hormuz or what Kim Yung Un is doing in Pyongyang - since his bff Dennis the “Worm” left. It seems that the folks who invest in stocks are bothered to the point of apoplexy over the most inconsequential world or national news events which have really nothing to do with the inherent value of a company – as reflected in its stock. Could it be that the election of the new Pope has had something to do with the rise in the Indices?
Equally mysterious is why the markets continue to advance despite the bad behavior of all those elected folks in Washington, DC. Surely, Obama’s warnings regarding the implementation of the Sequester and all those horrid consequences – including shutting down the White House tours, would make the market makers skittish when it comes to plunking down hard earned dollars on the market’s counter top.
The stock market goes up, down and up. Always has and always will. Indeed, the markets are due for another of their infamous “corrections”, i.e., a 10% or better drop in overall performance. The media, on that day - all those talking heads on the cable channels and the anchors on the 7 O’clock news hour, will offer up their theories as to what happened and why. There just might be one or two brave students of the indices who will allow that perhaps the markets appeared to go into a swoon simply because market makers decided it was time to harvest some profits…maybe!