Why Did The Stock Market Drop After Last Week’s Unemployment Report?
The stock market dropped after last week’s unemployment report for one reason, and one reason only. That reason is short-term investors.
We’re not talking about the proverbial day traders here, but ordinary people with ordinary fears and concerns who are not able to distance themselves emotionally far enough from their money to do serious investing. We’re talking about most people.
We’re not just talking about unemployment reports. We’re talking about any economic “news”, such as housing starts, manufacturing orders, foreclosures, mortgage rates, trade deficits, and a few dozen other factors which can be interpreted to mean different things by different people. Primarily though, we’re comparing what actually happens with what “experts” forecast. Even though we’ve seen a marked decrease in the number of new jobless claims, the unemployment numbers last week were a tiny bit higher than what was forecast.
This is not unlike the famous, or infamous, “guidance” which many companies offer as to how much money they will earn per share of their stock. For example, a company might say they’ll earn $1.00 per share, and various analysts will agree or disagree with that, some higher and some lower. Short-term investors effectively then make bets on who’s right, and of course, not everyone is. Bottom line, once per quarter these public companies have to formally report what actually happened, and the official results are either “beat”, “in-line” or “missed”. Beat means they earned more than the consensus of what all the analysts said. In-line means they met expectations but did not exceed them. Missed means they made less than forecast.
The economic reports, like the unemployment report, produce a similar reaction to the earnings reports.
If they “beat”, the stock could go way up, unless the experts think that there’s some good news that caused that which everyone already knows, in which case the stock price stays the same, or might even go down a little because the high expectations weren’t met.
If they “miss”, the stock is almost sure to drop, and maybe to drop hard. The irony of that is that the company might be doing very well, even making a good chunk of change, but not the amount that was “forecast”. For this reason, some companies have recently decided to not play the “guida
nce” game anymore, and I can’t blame them.
So, why don’t you need to worry about all this?
Because, if you’re listening, you’re realizing that the way to success is to be a long-term investor, someone who buys good-quality companies at fair prices, and doesn’t sell them until they’re at the top, or maybe not even then if they don’t need the money.
Bottom line?
Figure out what to pay attention to, and what to ignore.
That’s where I come in, to provide guidance along those lines, help you define your goals and keep you focused on doing the right thing for yourself and the ones you love. Is that okay with you?
If you would like to discuss investment ideas and opportunities please email me at John@financialideasblog.com.
Please read more about me @ http://www.whattoinvestinnow.com
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- I’m Not Convinced, “I Just Don’t Want To Play The Stock Market”
- Don’t Be Apprehensive About The Market!
- How Can I Educate Myself About The Stock Market?
- Is Tech Stock Hot? Technology Financial Ideas
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