Photo Credit: Don McCullough || The stock market, and even the bond market is more volatile than the economy is. This piece will explain why that is so.

The stock market, and to a lesser extent the bond market, is mystifying to most average people. Let me give you an example of this. I am the chair of my denominational pension board; after this year, I drop off the pension board. I help the pastors and staff of the RPCNA manage their retirement money. I am also an elder of my congregation in Maryland. That involves me in many aspects of my congregation, presbytery, and the synod/denomination. One of the things that I work on is a small congregation in a nearby state in what is called a Temporary Governing Body.

Four elders serve on the TGB. Three are pastors, and I am the sole ruling elder. As we began our conference call on Monday evening, and we were waiting for one more to show up, I mentioned how much the market rose that day. The two pastors expressed amazement, and said, “Why did your stocks do so well?”

I told them that an effective virus for C19 had been found, which made them ask: “But why would that make the stock market go up?” I said, “The financial markets don’t react to the way the economy changed today, but they react to the way their view of the future has changed. The presence of an effective vaccine made economic participants in the market conclude that normalcy for non-tech businesses was nearer than they previously expected.”

They were surprised when I mentioned that the FANGMAN stocks had fallen on the same day. I told them, “These are the stocks that benefited from the fact that we have to work, shop, etc. over the internet. If things return to normal, they will do less well. They benefit from C19.”

And now to start an unfounded evil rumor: the FANGMAN companies conspired together to create C19. And this is not true, but I find it funny how both the far right and the far left love to distort things that may be somewhat true, and blow them up into memes that saturate an increasingly divided set of social media.

As an example, I offer this tweet:

As an aside for my readers, so that you don’t have to grab your dictionaries, fideism is is the idea the if you believe it, it is therefore true. Now, it’s a laughable concept, but in a world where scientists may have political/philosophical goals, and therefore may not be neutral, fideism is a genuine problem. People begin to distrust science because of non-neutral scientists.

Back to my main point. Markets react to how the view of the future has changed. That is a volatile thing. As such the moves will be volatile when there is a big event.

Personally, I wish the calling of the Presidential election for Biden, and the announcement of the Pfizer/Biontime vaccine had come on different days. We could have then had a better sense of what the changes were from.

My sense is that the reaction would have been greater if the calling of Biden had been delayed by a day. Yes, Trump is a lousy guy, and he harms foreign trade, but he won’t do the damage that Biden might do unless the Wall Street Democrats intervene. They have done so before, and have kept the Democratic Party from being “as nasty as they want to be.”

This is why I am not worried much about Biden. The Wall Street Democrats control the party, not the progressives.

Ach, I keep getting lost in my train of thought. Back to the main point again: markets ask: “what’s it worth now?!” As perceptions of the future change, so does the market. When people see that things will be markedly better/worse in the future, the price will rise/fall respectively.

To that end, don’t be surprised when financial markets react quickly, and harder than you would expect. This is normal for financial markets, and you need to understand this.