Stocks went up this week. Inflation also exists. These two facts captured the attention of investors who apparently needed an entire five trading days to process information that has been available since 1776.
The headline says inflation is "top of mind" for investors. Bottom of mind last week. Middle of mind the week before. Investors rotate their concerns like a drunk spinning a prize wheel at a county fair. Whatever it lands on becomes the narrative. This week it landed on inflation. Next week it'll land on employment numbers or some Fed governor's speech or whether Jerome Powell smiled during a press conference.
Nvidia earnings also happened. A company reported how much money it made. Thousands of people who don't understand what Nvidia manufactures watched the stock price move and decided this meant something about their portfolio of three shares of SPY.
Stocks wrapped up a winning week. They could have wrapped up a losing week. The same investors would be citing the same inflation concerns to explain the opposite result. This is the core function of financial journalism. Attach a reason to a random walk. Make the chaos feel navigable. Sell the idea that someone somewhere knows what's happening.
Nobody knows what's happening. The market went up the same week inflation became "top of mind." These are contradictory signals. The correct response is to acknowledge randomness. The actual response is to write a headline suggesting causation where none exists.
Retail traders read this headline and adjusted their entire strategy. They sold their index funds. They bought gold or Bitcoin or canned goods. They texted their brother-in-law about hedging. They did this because a summary mentioned inflation and Nvidia in the same sentence.
The market will do whatever it does next week. Someone will write a headline explaining why. Investors will believe it until the following week when they believe something else.
Photo by Maxim Hopman on Unsplash
Leave a Comment