Dow Tops 9,000 as Home Sales Rise -- Really?

Last Updated Jul 23, 2009 2:22 PM EDT

I love the media! This piece from the AP notes the reason why the Dow is currently surging! It explains:
The National Association of Realtors said [home] sales came in at 4.89 million last month, above the 4.84 million analysts had been expecting.
Seems to make sense until you stop to think about it. Home sales came in at 50,000 or a lousy one percent more than expected. And this is what the media uses to explain this surge this morning.

Never mind the fact that the AP also reported new jobless claims came in higher than expected. They noted:

A department analyst said the government's seasonal adjustment process expected claims to drop sharply last week, after the normal pattern of auto layoffs was complete. But that didn't happen, causing seasonally-adjusted claims to rise.
I would tend to think that the bad employment news was a heck of a lot more powerful than a measly one percent higher than expected number of home sales.

What really caused the rally?
While not very satisfying, I don't really know why the market rallied -- and neither does anyone else. Freakonomics co-author Stephen Dubner had it right last year when his headline read "Stocks Surge, Reasons Unknown; May Be Nothing More Than the Random Fluctuation of a Complex System."
My advice
The stock market is not a simple mechanism. The media will always come up with a headline. If the market ends up falling today, the media will likely blame it on the negative jobless news.

Pay no attention to any short-term explanations of the stock market. The only thing more dangerous is a short-term prediction of the market.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.