Prices Go Up Today Because They Went Up Yesterday
Markets may initially trend for fundamental reasons, but prices overshoot by ludicrous amounts. At some point, prices go up today simply because they went up yesterday.
Michael Covel
A first-time viewer of my daily market recap show recently asked, “So what was driving the big move higher today?”
We always want to know what caused the market to move in a certain way. Did the market move higher because of good news about tariffs? Was the market dropping because of inflation concerns, or worries about the next Fed meeting?
In reality, while a big news event certainly can and does move markets very quickly, sometimes a trend just persists. Sometimes there’s not a specific catalyst, and no real particular reason why the market moved, except for simply the fact that demand outweighed supply. Optimism outweighed pessimism. Fear of missing out outweighed fear of losing everything.
Quite simply, the chart of the S&P 500 moved higher because that was the summary of the net interaction between buyers and sellers through the entirety of the trading day.
But we always want to know why. Back when I worked for a large market data firm in New York, one of the news reporters explained that for their headlines they were required to attribute a reason. “Stocks move lower due to elevated inflation fears” draws your attention. But if you read, “Stocks move lower because that just kinda happens sometimes,” you’re probably already on another website!
Sometimes there is a clear macro reason for a shift, such as news on US-China trade talks. Often a change in a company’s fundamental picture, most often in the form of a quarterly earnings release, can cause a stock to suddenly shift directions. Indeed, key technical analysis moments- a break of the 200-day moving average, for example- can accelerate a trend once investors realize there’s momentum behind a move.
But oftentimes, stocks just remain in a trend because no real catalyst has changed the picture. Investors still seem super anxious to own AI-related stocks in October, despite the fact that they’ve already run so hot off the April low.
Is there some new AI-related catalyst we can find to attribute to the recent upswing? I’m sure if you dig around, you can find something. And make yourself feel better for knowing “the reason” why the Nasdaq is still going up.
I’d rather just accept the fact that at some point, prices go up today simply because they went up yesterday.
Mindless investors search desperately for reasons why markets are moving, so they can feel better about what’s happening despite the fact that this knowledge does nothing for their returns.
Mindful investors realize that their time is much better spent analyzing the trend, and developing a systematic process for identifying when that trend is no longer in place.
RR#6,
Dave
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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.
