Stock market movement question.

So, I’ve been watching the markets the last few weeks, and I am admittedly rather clueless about the real workings of the stock market. However, after reading news headlines on why the market is moving up or down, I’m coming to the conclusion that business reporters simply make stuff up when trying to figure out why the market is moving how it’s moving.

Can someone please explain the following:

Yesterday and early today, CNN reports that “Stocks are surging ahead of an anticipated rate cut by the Fed.”

Today at 2:15, the Fed announces that they are indeed cutting the rates to 1%. Immediately after the announcement, CNN reports “Stock rally fizzles after Fed cut:
Wall Street gives up most of its gains after the central bank cuts rates by a half-percentage point, as expected.”

What? Stocks were up because they though the Fed might cut rates…then the Fed DOES cut rates, and stocks fizzle because of it? Can someone explain what is going on?

Pretty much.

I think the rise yesterday was IN ANTICIPATION of the rate cut and once the cut happened everyone said “oh well” and some may have started selling again. If the Fed had cut the rate 75 base points instead of 50 that might have surprised the market and it may have gone up some more today. Lots of things impact the stock market on any given day so don’t expect a single event to have a long lasting impact one way or another.

If you know that prices will increase due to speculation then you buy, and so does everyone else. Then, after the announced rate-cut, people sell in order to make a profit from buying when prices were lower.

All of these traders know the routine and they all swim together like a school of fish, buying low and selling high. It’s just the way the game is played.

A very old stock Market strategy is “Buy on the rumor - sell on the news”.

The play the game with other people’s money, then bill those people for using the money in their game.


Actually, I noticed this too, on the Yahoo news feed–for them, the first story was, “US Stocks Decline Ahead of Federal Reserve’s Rate Decision,” followed by “U.S. Stocks Gain on Expectations of Fed Rate Cut.” Now it’s, “Stocks fluctuate after Fed rate cut.”

The market is up a couple hundred point now. I wouldn’t exactly say it fizzled.

Another point that business news reporters have no idea what’s really going on, I guess.

I’m just hoping this upshoot from this week begins a level of stability. I don’t need big gains…I’d just like to see companies stop hemorrhaging money. I’m sure most feel the same way. (Well, unless you’re selling short a bunch).

Individual stock prices go up because more people want to buy at the existing price level than want to sell, and they go down because of the opposite. The market in general goes up and down because of the collective actions of the individual stocks.

To some exent, saying anything more than this is speculation and BS. However, to give business reporters some credit, they are answering the question of why there are more people interested in buying or selling either individual stocks, groups of stocks, or the market as a whole. Typically, they can get to this by asking the question of what changed immediately before the price movement happened.

If a particular company announces its earnings, and then its price immediately falls, it’s probably fair to say that the stock fell on the news of the earnings release. If other companies in the same industry fell simultaneously, it is probably fair to say something like: “Auto stocks fell on the news of GM’s disappointing earnings.” Now, some of that is accurate, and some of it relates to other things: “Auto stocks also fell because Bob Smith sold the dozen shares of Ford he inherited from his late grandmother.” However, when there is a major news item and logically related move in stock prices, reporters will often, and largely accurately, report that the one “caused” the other, recognizing that there are numerous other factors in there.

When there is an unexpected news release, the market will react after the news. However, when there is an expectation of something economically relevant happening, traders will buy or sell in anticipation of the expected thing happening to “get a jump” on it. Something widely anticipated like the half-point rate cut at the Fed’s scheduled meeting today will be almost entirely processed by the market before it happens. As a result, once the anticipated happened, there wasn’t much market movement. However, if something unanticipated happened (like a quarter point or three-quarters point cut), there would have been intense trading and market movement.

Often business reporters will talk with people actually trading, either on the floor of the exchanges or in the major trading firms, who will explain why they are buying or selling, so they can get some idea of part of the reason the market is going one way or the other.

Is it pretty speculative why the market moves, yes. Are the reporters ever able to get behind all of the reasons for the moves, of course not. Are they sometimes essentialy bullshitting, sure. But is the information frequently useful to understanding the broad outlines of market movements, yes.

**Can someone please explain the following:
Yesterday and early today, CNN reports that “Stocks are surging ahead of an anticipated rate cut by the Fed.” **

OK, here’s the secret to being an instant expert on explaining the movement of the stock market. Suppose the Fed is expected to cut rates (as in this case).
If the stock market is going up, you would say: “Stocks are surging ahead of an anticipated rate cut by the Fed.”
HOWEVER, if the stock market is going down, you would say: “Stocks are falling DESPITE the anticipated rate cut by the Fed.”

If you don’t believe me, listen carefully to the financial news reports and you’ll see what I mean.