I’ve seen this description too. How one deals with it is a matter of investment strategy: As Telemark said, this is just transient noise if you’re in it for a long-term investment (as the typical individual, saving for retirement, typically ought to be).
For the big investment institutions, who have very knowledgeable experts watching this just all day every day, and who do trades in large volume, the other possible strategy is to play that noise itself, and make that your game. These are the institutions that make massive trades, minute-by-minute (and increasingly, microsecond-by-microsecond, yes, literally), hoping to take best advantage of every little blip. By making large enough trades (and making the right gambles), these trades may yield a profit of just fractions of a penny per share, yet adding up to multi-megabuck gains. Or losses, if they goof. No doubt you’ve read about some of those goofs that made big news.
The short term fluctuations of the Dow are just a reflection of investor sentiment. “Sentiment”, as in an emotion, not something rational. It’s a reasonable guess that the Canadian shooting could make investors pessimistic and sell, but there’s no way to prove it, and daily fluctuations keep on fluctuating. Today’s losses could spark a rally tomorrow.
And I just checked the Dow, up 200+ today. The people making money off this are measuring their trades in milliseconds, they bought and sold a boatload of stocks in the time it takes me to look up the current prices. For the average person to invest in the stock market they have to go in long term, and not get tempted to sell by daily changes.
There’s those lovely stock market analyst weasel words “on” and “after” (or even “despite”). Like “Market rises on consumer confidence data” or “Market falls after terrorist attack”. No headline ever says “Market rises/falls because of…”, just words that are meant to sound like that, but actually mean “around the same time of”. Of course some of the “on” or “after” things are actual causes of market changes, but the headlines maintain a calculated level of “just sayin’”.
I’ve always wondered about TV channels like CNBC and BloombergTV that have live stock market tickers. It seems like the world is neatly divided between people for whom the moment to moment fluctuations of the market don’t matter at all upon whom such detailed information is wasted, and people for whom such fluctuations are critically important, all of whome have better access to that info through trading terminals and what not. Does anyone ever actually make use of the TV-reported ticker?
This is one of the dirty secrets of financial reporting.
The market moves. Reporters call a couple of analysts. They make something up and get their name in the paper. The exercise is a little silly. When I used to read the New York Times and Wall Street Journal, I would occasionally encounter mutually exclusive explanations across the 2 papers.
Max Frankel had mastered neither economics nor finance to my knowledge, but he was correct with regards to financial reporting.
[QUOTE=Max Frankel, former Editor in Chief of the New York Times]
What prompts these fictions? Why on earth do otherwise sober publications and broadcast media indulge these tall tales by Analysts presuming to explain more than 300 million trades a day? Why belabor the artificial drama of the Dow, which could be rendered in a simple number, like yesterday’s humidity? And why ascribe human form to the market, as if it could have a single emotion, like “confidence” in the dollar or a “lack of faith” in Congress?
…The Analysts who presume to explain the moods and moves of these zillions (many of whom are in any case looking to outguess each other’s moods and moves) are spinning fairy tales. The media embrace them because they’ve learned that dramatic narratives, not raw numbers, are their stock in trade. What fun is the game’s final score if we can’t read about villains and heroes? What’s so interesting about yesterday’s temperature if we can’t read about stalled cars on icy roads and brutal landlords who failed to turn on the heat?
[/QUOTE] http://www.nytimes.com/1995/04/16/magazine/word-image-the-story-of-dow.html
More generally, the stock market receives extensive coverage because it’s exciting. It’s not the most important indicator of the economy by far.