Thursday, October 25, 2007

What Moves the Market?

Excerpts from an article in the WSJ caught my eye this morning because I often wonder what moves the market. If some person comes up with a rumor no matter how unreasonable, that person can move the market. What if the market is down for the day, which is ruining some trader’s position, does that person float a rumor in the hopes of moving the market up. Sounds to me like the market is at the whim of unscrupulous random rumors, that people just make up in the hopes of improving their positions. So much for the efficient market hypothesis. Hmmm! Text in bold is my emphasis.

Lingering concerns about corporate earnings, credit risk and the economy sent stocks plummeting, only to stage a furious afternoon comeback amid hopes for lower interest rates.
The Dow Jones Industrial Average was off more than 200 points at its intraday low, but it ended the session off just 0.98 point, or 0.01%, at 13675.25. The Dow is up 9.7% this year.

Safety-seeking investors drove up prices of government securities, driving down their yields. By late afternoon, Treasurys maturing in five years or less were yielding less than 4% for the first time in more than two years.

Rumors of an emergency meeting of the Federal Reserve helped to drive the afternoon rally in stocks. A spokesman for the central bank declined to comment. Experienced Fed watchers considered it extremely unlikely, as Fed rate-setters already have a regularly scheduled meeting next week. . . . .

. . . . . "People naively believed we were out of the woods," said A.G. Edwards & Sons strategist Bill Hornbarger. "Now that we're getting a second dose of it, they're thinking this is not going to go away -- and it's going to have negative implications for the larger economy."

Thomas di Galoma, head of U.S. Treasury trading at Jefferies & Co., said the market now clearly expects Fed to cut its short-term interest-rate target when it meets beginning Tuesday.

Futures traders, he notes, are now pricing in roughly an 80% chance of a half-point cut by the end of the year, up from a 40% chance two weeks ago. (I heard this morning on CNBC that it is up close to 100%.)

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