10/09/2004

Factors Affecting Markets

Downbeat Jobs Data Pressure Stocks

Major indexes in the stock market fell this week. Despite 90000 plus jobs created this month, stocks had a hard time keeping up with analyst expectations. Experts contribute the bearish week in the market on a combination of record high closing prices for oil, job growth falling about 60000 jobs short of estimates, and a slip in consumer confidence. Like a regression analysis: log stock market= b0 +b1log oil price+ b2 (estimated job growth – actual job growth) + b3 log consumer confidence + u, experts suggest these three variables are greatly responsible for the lack of performance this week.

The anticipation for a growing market may back fire causing large sell offs if anticipated oil prices and job rates don’t reach their suggested levels.


source: http//www.msnbc.msn.com/id/3686270/

4 comments:

Bryce Larkin said...

I know that the oil prices are causing many problems in the economy, but I don't know if it could cause the stock market go down. The high oil prices could raise the unemployment rate. The stock market is so diverse, I do not think the oil prices could make the market fall.

John West said...

Oil affects every part of our economy, including the recent slide in the market. Jobs are won and lost with respect to current oil prices. This loss or creation of jobs is in-part a major player in what happens in the market. When companies are paying higher oil prices, they are less apt to hire more employees and may even have to make staff cuts. This has a cyclical effect on other people because their friends and neighbors are losing jobs and this makes them bearish in the market. If oil prices ever come down or find a stabilty point, the market will respond favorably.

Maudi said...

With the market changing day to day based upon expectations, it is hard to know from one day to the next whether or not the market will be up or down. The key is to not worry about the short term but rather look at the big picture and whether or not the market has a trend.Once you find the trend follow it until the wind changes.

Dr. Tufte said...

This is a good post because Steve has chosen to include a hypothetical regression as an explanation of the media's backstory on the stock market for this week.

But, the fact is that such a regression will show no effect from those variables on stock prices. None whatsoever!

There is no problem with the data or methodology. What this means is that the stories that they tell on the media along the lines of "the stock market dropped today because President Bush blew his nose" have no foundation.

The saving grace of this nonsense is that it is just that. These media opinions are so far from being correct that 1) they carry no information about why the market did move, and 2) they carry no information about why the market didn't move. This makes them a form of cheap talk. You may as well tune in to Everybody Loves Raymond for your stock tips. Fortunately, it's harmless.

Stock prices follow a certain mathematical process known as a martingale. Martingales are unpredictable. The efficient markets hypothesis implies that we shouldn't be surprised by this result.