Stocks Surge a Day After Fed Reveals Stimulus Plan

The Associated Press article implies that the surging stock market is a result of yesterday's announcement of more quantitative easing. The AP calls this a "breaking news update - check back soon for further information."

Reality check
This announcement from the Federal Reserve came yesterday while the stock market was still open. I think the AP is implying that it took a day for the markets to really digest this information.

Is this plausible? Well, in the days of supercomputers making thousands of trades a second and causing wide volatility like we saw in the flash crash, pardon me if I'm a bit more than skeptical.

Media stock market handbook?
I suspect that most market reporters think along the lines of the following:

Market surges - attribute gain to good news or spin a release to make it look good.
Market plummets - attribute loss to bad news or spin a release to make it look bad.

Of course, if the writer just can't explain it at all, fall back on the statement "the market shrugged off the news of ...... and gained / lost..."

Pay no attention to the media
The media merely gives consumers what they want to hear. In reality, they create a false sense of confidence in understanding the movements of a market that makes fools of us all the time. Accept that it is smarter than we are, and you've taken the first step toward long-term successful investing.

More on MoneyWatch
The Financial Media Hypothesis (FMH)
Why the AP (Associated Press) Keeps Helping Wall Street
Where to stash your cash

Allan Roth

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.

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