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Posts Tagged ‘stock market’

One Possible Explanation for the January Stock-Market Fall

In a Wall Street Journal op-ed, Red Jahncke argues that the recent drop in U.S. stock markets may be a delayed response to a tax change:

In late 2012, investors sold huge amounts of investments with long-term capital gains to take advantage of the expiring 15% “Bush” long-term capital-gains tax rate before the current 23.8% rate for higher-income investors took effect on Jan. 1, 2013. These sales left investors with few unrealized long-term gains going into 2013.

Instead, as the market surged, investors’ new gains were held mostly in short-term positions, which they were loath to sell given that short-term gains are taxed at ordinary income-tax rates (39.6% for high earners). With this inhibition there was less sales pressure last year, and for that reason the market may have risen more than it would have otherwise. Indeed, last year’s 30% market gain exceeded most analysts’ predictions.




Why Is No One Talking About the Stock Market's All-Time High?

U.S. stock markets* are flirting with all-time highs (it may happen today) but I am hearing and reading very little about it. Why is that?

I can think of a few possible reasons, and am eager to hear yours.

1. After the spectacular meltdown of 2007-2009, a lot of people are generally gun-shy and/or inattentive.

2. Since so many people sold into the teeth of the meltdown, and stayed on the sidelines since, a new high is to them relatively bad news.

3. Because the economy itself is not quite roaring, a roaring stock market doesn’t seem legit (unless, of course, you consider it a leading indicator, which it usually is).

4. Just “getting back” to an all-time high from more than five years ago is, at best, a muted victory.

All that said, I remain surprised by the lack of chatter.

*The Dow and S&P 500, at least; the NASDAQ is still a very long way off its tech-bubble high.



Should "TailSpotting" Be on Your Stock-Research Checklist?

From a new working paper by David Yermack, an economist at NYU/Stern, called “Tailspotting: How Disclosure, Stock Prices and Volatility Change When CEOs Fly to Their Vacation Homes” (abstract; older version in PDF):

This paper shows close connections between CEOs’ vacation schedules and corporate news disclosures.  I identify vacations by merging corporate jet flight histories with real estate records of CEOs’ property owned near leisure destinations.  Companies disclose favorable news just before CEOs leave for vacation and delay subsequent announcements until CEOs return, releasing news at an unusually high rate on the CEO’s first day back.  When CEOs are away, companies announce less news than usual and stock prices exhibit sharply lower volatility.  Volatility increases immediately when CEOs return to work. 



The Chinese Haven't Bought All Our Stock Markets, Have They?

Maybe my computer thinks I am in China (but I am not; I am in New York).

Maybe a Chinese hacker is just having a laugh (it has happened before).

Maybe the Chinese have bought all of our stock markets (although I seriously doubt it).

Or maybe, for whatever reason, Yahoo! Finance is simply some coding issues. Because when I checked the markets this morning, they seemed to have been renamed: 



Are We Living in a Loss-Averse World?

Three years ago today, the S&P 500 closed at 676.53.

Today, it opened at 1366.50.

As Businessweek asks: where’s the party for this bull market?

The article, by Whitney Kisling, is interesting throughout, exposing the massive pessimism still attached to the markets despite this steep recovery. It is well worth a read for anyone who believes (or wants to believe) that behavioral economics has a lot to teach us about real-world investing behavior.



"The Stock Market Crash of 2008 Caused the Great Recession"

That is the title of a new working paper by UCLA economist Roger Farmer (abstract here; PDF here).

Note that Farmer doesn’t argue that the crash “contributed to” the recession, or “was a leading indicator” of the recession — but, rather, that the crash “caused” the recession. It’s worth acknowledging that a) Farmer attributes the housing-market crash as the direct trigger of the stock-market crash; and that b) he does this in service of the larger question: how to beat back unemployment.

From the abstract:

This paper argues that the stock market crash of 2008, triggered by a collapse in house prices, caused the Great Recession. The paper has three parts. First, it provides evidence of a high correlation between the value of the stock market and the unemployment rate in U.S. data since 1929. Second, it compares a new model of the economy developed in recent papers and books by Farmer, with a classical model and with a textbook Keynesian approach. Third, it provides evidence that fiscal stimulus will not permanently restore full employment. In Farmer’s model, as in the Keynesian model, employment is demand determined. But aggregate demand depends on wealth, not on income.



Can Google Searches Predict Stock Price Performance?

A recent study in the Journal of Finance by Zhi Da and Paul Gao of the University of Notre Dame shows that data from public Google searches can be used to beat the stock market by up to ten percentage points per year. Similar findings were released last month by researchers at the University of Kansas.
The Notre Dame authors argue that the frequency of Google searches received by a stock (its SVI number) is a better, more direct method of measuring investor attention (a precursor to buying the stock) than traditional, indirect methods of measurement, such as news and advertising expense.



What if They'd Just Called it the iPhone 5?

Unless you’re living under a rock, you’re probably aware that Apple unveiled a new iPhone yesterday. At what turned out to be a relatively muted Apple product launch, it was new CEO Tim Cook‘s first chance at replacing Steve Jobs as product pitchman. It seems he did just fine.
The new iPhone is loaded with cool new features that the market was anticipating, with one exception: it’s not called the iPhone 5, it’s called the iPhone 4S.
By the time it became obvious that Cook wasn’t going to introduce anything called an iPhone 5, (about 1:50 pm EST yesterday), the stock price began to plummet pretty quickly, as you can see in the chart below. From 12:15 pm to 3:15 pm, the price dropped more than 6%. Also, note the spike in volume at the bottom.



FREAK-y Stat of the Day: It's 2008 All Over Again

This Freaky stat comes courtesy of reader Benjamin Bias, who brought to our attention this oddity, as noted by Joe Weisenthal at Business Insider:
Yesterday, Oct. 3, 2011, the S&P 500 closed at 1,099.23.
Exactly three years ago, on Oct. 3, 2008, the S&P 500 closed at 1,099.23.
As if investors needed anymore reason to be nervous these days.



Computers vs. the News: What's Behind the Stock Market Chop?

Today marked another triple-digit move for the Dow Jones Industrial Average, which closed up 272 points. Of the 45 trading days over the last two months, 28 of them (including today) have seen triple-digit moves, meaning the Dow has gone up or down by 100 points (or more) 62% of the time since July 25. The average daily move for the Dow during that time has been 188 points, or 1.6%.
Here’s a snapshot showing the performance of the Dow over the last two months:
Pretty choppy, right? I’m no stock market historian, but I’d imagine that you’d be pretty hard-pressed to find such a sustained period of volatility. Which brings up the question: what’s causing this? Obviously, there is a lot of uncertainty (and fear) in the market right now. From Europe’s sovereign debt problems, to America’s toxic political climate, to the sputtering global economy, there is a lot to be anxious about. Anxiety breeds indecision, which characterizes the bumpy market pretty well.



Freakonomics Poll: When It Comes to Predictions, Whom Do You Trust?

Our latest Freakonomics Radio podcast, “The Folly of Prediction,” is built around the premise that humans love to predict the future, but are generally terrible at it. (You can download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript here.)
There are a host of professions built around predicting some future outcome: from predicting the score of a sports match, to forecasting the weather for the weekend, to being able to tell what the stock market is going to do tomorrow. But is anyone actually good at it?



Abercrombie's "Situation" Subsidy Sunk its Stock Price Right? Not Quite

So this morning, Abercrombie and Fitch reported solid earnings for the second quarter. Its revenue was up 23% off strong international sales, and its net income rose 64% to $0.35 a share, beating Wall Street estimates of $0.29. So how come its stock price closed down nearly 9% today?
If you believe the knee-jerk mythology of the Internet, the answer’s simple: The Situation. Here’s the story: On Tuesday, the market closed with Abercrombie stock above $70 a share. That night, the Ohio-based company released a statement (strangely dated Aug. 12) titled “A Win-Win Situation,” in which it announced that it had “offered compensation” to Michael “The Situation” Sorentino to “cease” wearing its clothes. Here’s the entire statement:

We are deeply concerned that Mr. Sorrentino’s association with our brand could cause significant damage to our image. We understand that the show is for entertainment purposes, but believe this association is contrary to the aspirational nature of our brand, and may be distressing to many of our fans. We have therefore offered a substantial payment to Michael ‘The Situation’ Sorrentino and the producers of MTV’s The Jersey Shore to have the character wear an alternate brand. We have also extended this offer to other members of the cast, and are urgently waiting a response.”



Why the Market Meltdown is Crazy

After Thursday’s massive stock market sell-off, a lot of people are talking about how we may be experiencing another year like 2008. I’m going to get right to the point: that’s impossible. Here’s what was happening in 2008:
A) Housing bust: housing prices were already down 20-40% off of their highs.
B) Financial crisis: two major banks had gone bankrupt and every other bank was at risk.
C) Mark-to-market accounting was ruining bank balance sheets.
D) The uptick rule had been abolished on short-selling.
E) We were already in a recession.
Let’s fast forward to right now and walk through those items plus a few more. But first, a reminder to follow me on Twitter.



Odds of a Double Dip: A Sampling of Opinions. Plus, Wolfers on Twitter

So by now you’re hopefully aware that the stock market completely bombed today. As I type, the Dow is down more than 500 points, its worst day since December 2008. (Official day’s tally is -512.76) And just like that it seems, the recovery is over. Well it was fun while it lasted; kind of.
Our resident macro economic guru Justin Wolfers has come up for air from his Twitter experiment (follow him @justinwolfers) and sent over this interesting sample of recent opinions from a handful of economically savvy folks, all giving their odds of the economy entering another recession:
Larry Summers: “at least a 1-in-3 chance.”
Marty Feldstein: “now a 50 percent chance.”
Ryan Avent: “more likely than not.”
Justin Wolfers: “40% chance and peak was 4 months ago” and “The guacamole has spoken.”
Don Kohn, Vincent Reinhart, Brian Madigan: “between 20% and 40%.”
Matt Yglesias: “precisely 31.22%.”
Brad DeLong: “the odds now are 50-50.”
Christy Romer: “The risks have gone up…compared to where we were six months ago.”
Bob Hall: “We certainly are in a more vulnerable situation now.”
Jeff Frankel: “not necessarily enough to push the probability over one half.”
Jay Carney: “we do not believe that there is a threat there of a double-dip recession.”
Justin has had a busy today on Twitter. Clearly, he flipped heads this morning. Here’s a sampling of what he’s been tweeting about: