Monday, May 10, 2004

Never Satisfied: Of course, bad economic news sends the stock market tumbling. However, good economic news also sends the stock market tumbling.

Why? Because investors are terrified that improvement in the economy will persuade the Fed to raise interest rates. But the problem isn't that interest rate hikes would hurt the economy. In fact, rates are insanely low and should be brought up to a moderate level. The problem is investors believe that other investors will see potential rate hikes as a bad thing, so they sell.

It's times like these that it's important to remember that the Dow, Nasdaq, and all those other funny names just reflect the value of a few stocks, not the strength of the economy.