When the federal chairman speaks, who does all the buying and selling?

Factual Questions
1

When the federal chairman speaks, who does all the buying and selling? There seems to be an almost immediate buy or sell depending on what the chairman says about rates, inflation, or the general economy. Everything I have read says that market timing is a bad idea… so who is doing all this buying and selling? Day traders? Institutional investors (I would think they would have a more long term outlook)?

2

Most sales of stock today are to people with short-term positions. And that include institutional investors. The idea of buying a stock and holding onto it for years is long gone.

It’s not so much a matter of timing the market as getting in ahead of others based on incremental information. Stocks can be essentially thought of as the net present value of future earnings. If the Fed says something that will presumably affect the future earnings of a company, then its present value changes. If you can be first to take advantage of that change you have a tiny percentage more in profit. That’s what they are looking for.

All this also means that individual investors cannot win in this system. That’s why they are always told to either give their money to professional investors or else buy index funds that just track the market.

3

The Fed’s reponsiblilty is to the banking system so any stock affected will be a company within the credit and debt (and, since 1999, insurance) complex.

4

[QUOTE=Will Repair]
The Fed’s reponsiblilty is to the banking system so any stock affected will be a company within the credit and debt (and, since 1999, insurance) complex.[/QUOTE

I’m not sure I agree with this. Most companies need to be able to finance their purchases. A change in the interest rate will influence how much interest a company will pay to borrow money or to issue bonds.

5

Even if a company has all the cash for its needs, its suppliers and customers are unlikely to. You have to count the number of firms whose umbra of connections to finances intersect in absolutely no way with the credit economy. And the number you would count to would be zero.