Seems like after every stock market update on the raido or television, they seem to add a sentence of why whatever happened, such as:
The market lost 100 as profit taking took hold, or
The market gained 10 points on news Amalgamated Cardboard would post a 25 cent gain for the year.
Who comes up with this? Do these people really go around and talk to people on the floor, is it all baloney, or something else? How can they boil down a billion or so transactions to inclement weather in Kurdistan?
Thanks for your potential clearing up of this issue.
The Dow Jones Industrial Average is a figure calculated based on a set list of 40 (?) selected stocks. It’s pretty easy to caculate that just by looking at those stock prices (the last sold price) during the day and even easier at the end of the session.
There are several other benchmarks, such as the S&P 500, which are broader (500 stocks) but are calculated the same way. These apply to the New York Stock Exchange, the NASDAQ number is from a seperate exchange, more heavily weighed to high tech stocks.
So, certain stocks moving up or down can have a big effect on one of the benchmarks, especially the DJIA which has so few stocks. GM going down 10% will have a huge effect of the Dow, but won’t have as big an affect on the broader market. Still, companies like GM rarely act alone, and things that affect GM will affect its suppliers, customers, steel, oil, etc.
As to how they keep track of it all, computers and lots of analysts. It’s a big system but it grew rather slowly over the years and the computers systems have been upgraded to keep track.
I think what the OP was asking is not how the computers track the transactions, but how do the analysts assign motives for the up/down swings (“Investors were nervous today after the government released a new batch of numbers”).
Yep, it’s pretty much baloney. I’ve always thought those “market wrap-up” type articles that appear in most major newspapers are the best examples of word collections that excude absolutely no actual meaning. The market is too big of a beast to be able to say that items of news X or Y or Z caused actions X or Y or Z to occur.
Also, sometimes these reports are contradictory. Lately some papers have reported that the market went up or down that day because investors fear that war will start soon; another paper on the same day will say that the market went up or down based on a belief any war wouldn’t start for another X weeks.
And today, after reports about British and American units entering the de-militarized zone, markets went up, because it relieved traders from the uncertainty whether war will come or not.
I agree it’s baloney. Or maybe traders actually will buy more if something happens that usually is creditet as something that makes prices rise - not because that something actually has a positive effect, but because everybody believes in this positive effect. As a result, prices might really go up.
For instance, the possibility of war holds a very big depressing influence on the stock market. The best example of this was just before the Gulf War. Bush I held a last-ditch negotiating meeting with Iraq. The conventional wisdom was, the longer the meeting, the more likely the settlement. As the negotiations wore on through the day, the DJIA went up and up.
Then came the announcement that they had failed to reach an agreement. I happened to be watching a stock ticker as they gave the press conference; you could see the DJIA drop like a rock, maybe about 80 points in less than a minute. It was clear that investor were dumping stock in light of the news.
Profit-taking is also a legitimate phenomenon. If there’s a big jump in prices, people often sell their stock the next day, hoping to get in before the price drops.
And you can also tell if an event has something to do with things. For instance, say the DJIA is up for the day. Then, GE announces a bad earnings report at 10:32. At 10:34, the DJIA begins a big drop. It’s reasonable to assume that the drop was due to the bad news from GE. Since GE is in the DJIA, if GE stock drops, so does the Dow (and the Dow methodology means that any drop in price by one of its 30 stocks, the effect is multipled, which is why more astute investors don’t think much of the Dow). Once the Dow drops, other investors sell their holdings, hoping to get in before they drop. There is a panic effect.
However, on some days, there isn’t any single event that explains why the Dow did what it did. Analysts will give varying explanations, and probably would indicate that nothing affected the market strongly, but the reporters usually want a reason and will pick one.
The “reasons” for stock market behaviour are usually derived by talking to a sampling analysts and traders. Since these are the people who are making the buying choices or recommendations, there is a fair degree of accuracy in polling them.
The market is manic depressive. It moves when it should’nt and stays still when it should’nt. All the news pertaining to the actual reasons behind a market rally or decline are not somebody’s BS, but simply thier speculation.
If a person knows why the market moves, then the market adjusts itself so that person cannot know why the market has moved. Kinda like the uncertainty principle.