Why did the market rise before the election and fall after? Your guess is as good as mine


I have long been a big believer in the idea that the daily fluctuations in the stock market can't be easily explained.

That doesn't stop people from making sage sounding comments about how the market fell 486 points today due to bad economic statistics -- like the ones we had today on contraction in service sector employment. But by that same logic, the market should have tumbled yesterday as well, thanks to bad retail sales, employment and auto sales numbers on which I posted -- and yet the Dow rose 306 points yesterday.

This got me to thinking about a possible explanation. There's nothing so fun as a good conspiracy theory. What if the Treasury was using its money to help prop up the market in the days preceding the election? My mind then leapt to a possible rationale: Perhaps it reasoned that since the collapse in the markets had helped Obama, a rise in stock prices would work to the advantage of McCain. Aha! It would certainly have looked better for the current administration if it could have been succeeded by another Republican in the Oval Office. If that was the intent, it didn't work too well.

Of course, just as there is no evidence that economic statistics -- or the election -- have anything to do with the market moving one way or the other, so it is difficult for me to find any evidence that the Treasury was funneling cash into the markets to prop it up. Oh well.

In all seriousness, I believe there is a fundamental lack of transparency if there is no credible basis on which to explain why the market moves every day. If the big buyers and sellers of stocks publicly disclosed their moves, then it might be feasible to explain them.

That does not seem to be on the horizon, though. So people will continue making their illogical explanations for those daily price swings.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

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Last updated: February 13, 2012: 10:34 AM

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