Market Moves Explained

Euro recovers from sell-off but outlook clouded | Reuters.

Occasionally, we observe dramatic market moves in response to an event. A recent example would be Draghi famed “believe me, it will be enough” comments last week. Recall that right after these comments Italian and Spanish yields dropped, world stock markets rallied and the Euro rose nearly two cents.

Event-driven moves are the exception rather than the rule. Virtually all of the movement we see on any given day is random noise. Today, the euro, Spanish & Italian debt, and European markets rallied. This article is attributing these rallies to new optimism that the ECB is going to do something notwithstanding the fact that they announced yesterday that they are not.

The real reason these markets rallied is…

I don’t know. No one knows. People like to believe that the world is a logical place, and these markets are moving up or down for a reason, but this is a false assumption. S0-called professionals are loathe to admit that they have no idea why something just happened; hence, if a reported asks one for an explanation of market moves, the expert will repeat a rumor rather than admit that he does not know why the market rallied/tanked.


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