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I listen to "Marketplace" on public radio every day, and when they report the day's movement of the DJIA, NASDAQ, and S&P 500 they usually give a reason why it went up or down that day. They might say something like "the Dow dropped 0.8% due to investor worries about the trade war."

How do they determine what "the market" was thinking just a few hours earlier that day? Are they really able to survey a sufficient number of investors to find out why they bought and sold particular securities?

Sometimes the reason is fairly obvious: after a crash, you can predict that lots of investors will start buying because of the bargains, and this will produce a recovery. But most of the day-to-day fluctuations seem like they would be harder to pinpoint, at least that quickly.

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    They don't know; they are making interesting stories - which is their job ( not investing advice). OR, just individual opinions. – blacksmith37 Aug 17 '18 at 16:00
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    While they present themselves as experts, the reality is that most are struggling with crippling student loan debt in HCOL areas so also high rent/mortgages. They know very little about investing or good personal finance, generally speaking. It is best not to heed what they say. – Pete B. Aug 17 '18 at 16:13
  • @PeteB. Kai Ryssdal is in his 50's, I doubt he's still struggling with student loan debt. He's been hosting Marketplace since 2005. – Barmar Aug 17 '18 at 18:08
  • @Barmar - 50/50. – Pete B. Aug 17 '18 at 18:38
  • Kai Ryssdal is also not expressing his own opinions. Writers for the program are most lilely talking to financial analysts and summarizing their opinions in the script that Ryssdal reads. – The Photon Aug 18 '18 at 16:57
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They generally don't.

To make that type of statement accurately you would have to go through a very rigorous scientific anylasis. I imagine news pundits don't have the background or resources to do that.

This is especially true if you want to differentiate between random events that may not be correlated at all. For all intents in purpose you can't prove that one event caused a move in the market, or that move in the market was going to be there anyway and that "trigger" event just happened to be broadcasted at the same time. It could be entirely possible that no one with a certain position was even aware that event happened in the first place when they made their actions.

For example consider someone who has a position in stock A. Lets say they are up 500% on their position to date. Also assume they have a large position (Something like a million shares). This person needs to sell quickly, they need the cash for a better opportunity or something. How do you get out of a position quickly? Give buyers a reason to buy, sell the stock for cheaper then the current market price. Say they decide to sell at a 10% discount to get the money cause they don't feel like waiting a week to get out of the position while they wait for enough buyers to sell out their position. At the exact same time that this person puts through the trade, news comes out about president Trumps tariffs, and how they may effect the general sector that stock A is a part of. Because you are selling a large position you are moving the market price, and some retail investors see that stock A is going down in price. The retail investors get scared and sell off all related stocks. If you have enough retail investors getting scared and selling they can move the rest of the prices. For all you know 2 people watched the news break, and those retail investors wern't even aware that Trump made the comment.

As an outside observer can you realistically prove that the Trump announcement caused the market to move down, or can you disprove that someone is just in a hurry, and a bunch of retail investors got scared? If you went through enough trouble sure you probably could. But do these pundits, or their team go to that trouble? No. They just make a story of what is obvious to them, they could be right, they could be completely wrong.

They can usually get away with making the comparison because "logically" it makes sense. If Trump announces tariffs on a country, and that company with stock A does a lot of bushiness in that country, saying that Trumps announcement caused a run in the sector probably isn't a bad explanation. But they could also be completely wrong, and no one would ever know that. Logically it seems like a good enough answer so people usually don't care enough to question it.

  • A lot of what ifs and stretched points. One person simultaneously selling a large block of share in the opposite direction at exact time of a news release is a rather infrequent event. A large block sell order like this that triggered the sell off reported by the exchange and available to financial news reporters and services. No one sells a million shares at a 10% discount to the market because they need cash and don't feel like waiting a week. Only 2 people watched the news break? Really? Traders and institutional investors are glued to their screens all day looking for such news. – Bob Baerker Aug 19 '18 at 10:55
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    @Bob Baerker: Congratulations on pointing out the obvious, it is a hypothetical situation. I never said it was realistic. I am only pointing out that life isn't as simple as saying "this happened, therefor this is the cause." All I am saying is that these news pundits are making logical conclusions, not doing an in depth scientific analysis on every little event that moved the market. Many investors go out of their way to avoid the news. I wasn't aware that you were omnipresent and understood every action ever taken by every investor ever. Care to share that ability with the rest of us? – user75979 Aug 19 '18 at 17:04
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    @billy-bob +1 Complicating things still further, they may be several pieces of news released at roughly the same time: saying which (if any) triggered a swing in the market is even harder to justify. – TripeHound Aug 20 '18 at 9:31
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Reporters don't have to determine "what the market was thinking just a few hours earlier that day".

The market tells you what it is thinking when the news is released. Good news triggers buy orders, and bad news triggers sell (or short) orders, within milliseconds. Price starts moving and volume increases. The tape tells the tale as it is happening.

  • So it's because much of it is automated, and everyone uses similar algorithms that react to the same news simultaneously? – Barmar Aug 17 '18 at 15:23
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    Algorithms are a part of it but not the answer. There are traders that monitor news wires for all major stocks, either visually or with computerized technology. The trading desks of investment banks are on top of it as well. Even retail investors do the same, albeit with lower tech. I have a bunch of price alarms set on all of my stocks at all times. A few fired off during the pre-market this morning because they moved enough for me to execute at that price. I was reacting to price without even knowing the news. Before noon, volume in some has exceeded average daily volume. – Bob Baerker Aug 17 '18 at 15:40
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    The question, though, is who determines whether a particular piece of news is good or bad? E.g. Trump imposing a tariff on aluminum imports might be good news for American aluminum producers, but bad news for everyone who uses aluminum, or worries about the long-term consequences of trade wars. – jamesqf Aug 17 '18 at 16:22
  • The market collectively determines price from the news. It doesn't matter whether a particular piece of news is good or bad in the long run or who is determining that. What is important is the what it means to the preponderance of volume at that moment in time. For macro news like tariffs, traders and analysts determine who will benefit and who will suffer. – Bob Baerker Aug 17 '18 at 16:55
  • This is essentially just restating the question. The question is when you read text that says "the market moved because of X", how does the writer "know" that X was in fact the (or a) causal factor in the market movement. I don't understand what you mean by "reporters don't have to determine what the market was thinking". The fact is that reporters do make claims about what the market was thinking. The tape and the history of price changes does not contain information about causal relations between events. It only says what happened; the question is about why it happened. – BrenBarn Aug 17 '18 at 19:17

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