What Happened in the Stock Market Today?
last updated February 03, 2014
The stock market is a collection of countless transactions. The stock market doesn't have an opinion. The stock market doesn't have feelings. Sometimes stocks go up and sometimes stocks go down.
Unless you're an active day trader flipping penny stocks (and if you are, please understand the risks of penny stock trading), what happens in the stock market on one day or another probably isn't as big a deal as the financial news wants you to believe.
What Happened to the Stock Market Today
What the market did today is a combination of the decisions of hundreds of thousands of people.
Everyone seems to have an explanation for why stocks go up and stocks go down. People are happy about the economy. People are worried about the economy. People want interest rates to rise. People want interest rates to fall. Europe looks good. Europe looks bad. Canada's raising tariffs. Canada reported extraordinary growth. Company A met its earnings goals. Company B didn't. Inflation numbers looked bad. Inflation numbers looked good. Gold is hot. Silver prices fell. Oil supplies are running low—or high. Unemployment numbers changed too much or too little. Euros went up against the dollar. Who knows?
Don't all of those contradictions suggest that these post-hoc explanations are, well, guesses?
Any of the measurements people quote—any of the stock market indexes which go up and down—are just measurements. They're averages. They're big bundles of numbers all mixed together that, in truth, don't reflect much more than a snapshot of a point in time. They're numbers that stocks happened to end on when trading stopped for the day.
Maybe Coca-Cola announced record earnings. Maybe it's the middle of the month, and your 401(k) contribution has just come out of your paycheck, so you automatically bought a fund or individual stocks. Maybe you've just retired, and you'd like to take 40 years of profits to pay off your mortgage, so you're selling some stocks. Maybe a stock hasn't gone anywhere for you, and you don't mind taking a little loss for the tax break. Maybe you found a bargain and you just can't wait to snap up a few shares. Maybe it's a stock bubble or stock valuations are running high.
To some extent, these feelings are from people all following each other, trying to predict the exact economic actions of other people all engaged in the same activity. (People who bought a stock at too high a price are looking for greater fools to unload it on.) During the period of the stock market's opening, everyone's engaged in trying to figure out the optimal value for the price of every stock everywhere. It's exhausting to think about the trillion or so variables that go into that immense labor of capitalism. It's crazy to consider how complicated the chains of cause and effect and overthinking are.
Why Did the Stock Market Go Down Today?
Keep in mind that the stock market is no single thing. It's a complicated system; a huge collection of thousands of stocks and funds and futures and derivatives. You might look at an index like the Dow Jones, S&P 500, or the NASDAQ and it will move in a direction opposite of another index.
If the market, however you define it, went down, is it because one company changed its business model or its forecasts? Because a mutual fund changed its strategy? Because a glitch triggered a wave of selling? Because yesterday it went up a lot and people decided to take their profits and invest elsewhere? Because one large investor decided to cash out on high valuations? Because another round of stock options for Facebook employees matured, and they sold? On the whole, we can't say why the market went down today is due to a single reason.
Why did the Stock Market Go Up Today?
For the same reason, it's impossible to point to a single reason why any of myriad measurements of the stock market increase or decrease in a day. Sure, a company releasing great news about its business might draw more investors to buy its stock and push up the price, but you can't tell if they're speculating or if they've analyzed the stock and its financial basics and really believe it's a good price now.
If you have to ask "What do other people see in this stock?", they're probably hoping they can sell it to you later by making it look more attractive than it is. Tread carefully.
The Stock Market Today is Irrational
Over time, we can correlate historical trends in the stock market to the global business cycle. When times are good, stocks as a whole tend to go up—bull markets. When times are bad, stocks as a whole tend to go down—bear markets. This doesn't predict the behavior of any individual company's stock over time, however, nor does it suggest what any stock will do on any given day.
Predicting what a stock will do on any given day is a guess. Some people will justify it with formulas and predictions and complicated examples, but they're looking for patterns in random fluctuations. Yes, if good news comes out, a stock price might rise the same way that if bad news comes out, the stock price might fall.
This can be tough to watch. You hate to see a stock you spent time choosing and researching lose value, but we're in this for the long term. We buy great companies. We stick by our simple rule, that "In the long run, great companies thrive."
What Did the Stock Market Do Today?
Benjamin Graham once observed that in the short term, the stock market is a voting machine. That's what it did today. It went up or went down based mostly on popular opinion, blown by the wind. In the long term, it's a weighing machine, which reflects the true value of businesses in their stock prices. That's why it's so important to think like an owner, and not just a trader.
To become a good investor, you must look beyond the irrationalities of the stock market day by day. Instead you seek to understand the real value a stock represents: ownership of a company with a solid plan to build lasting wealth. (That's what we teach here at Trendshare. That's what we help you learn and do.)
We don't try to predict the market's gyrations from day to day. We invest for the long term. We pick good stocks because we look for good companies with plenty of room to grow. When stocks go up, we celebrate. When stocks go down, we watch and wait.
Remember: the so-called stock market is one of many, many measurements of dozens or hundreds or thousands of companies in countless industries. Some businesses are great. Some businesses are poor. Some are growing. Some are shrinking. Some of their markets are disappearing. Others are expanding. We can examine history to explain what the market does over time, but we cannot predict a single day.
We are looking for great opportunities to buy good companies. Sure, the stock market may give us hints about the global business market and trends, but great companies buck the odds and produce great returns even if the market as a whole is down. That's the value investing strategy of great investors like Warren Buffett and Benjamin Graham. That's how they make money—finding the great companies producing great returns. That's how to find a good payout in the stock market.
The Stock Market Today (in a single sentence)
Does it matter what the market did today? Not really—not compared to what the companies we own will do in the coming years. Why did the stock market go up today? Who knows. Why did the stock market go down today? Who can say?
Leave questions about money supply and the Federal Reserve and unemployment rate and all of those airy factors to economists. Let other people second guess everyone else. We prefer a measured approach, one which gives our portfolios more stability against the daily (hourly) rise and fall of trader sentiment.
What happened in the stock market today? With a little bit of discipline and hard work and knowledge, you found a great company at a good bargain worth your time investing in. It's a boring strategy, but it's a great way to find a good yield while keeping your money safe. If you're ready to invest, there's no better time to start paying attention to what happened to the stock market than today.