The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

A Non-Theory

12/11/2017

When I was taught the “scientific method” long ago, I recall the arduous process of moving an idea from hypothesis to theory to principle.  While I don’t have time to go through that lengthy process, I do have a hypothesis.

While the stock market invariably over-reacts, it over-reacts to different news, depending on where it is in the cycle.  During bear markets, the stock market largely ignores political news and over-reacts to economic news.  During bull markets, it largely ignores economic news and over-reacts to political news.

During bear markets, politicians can’t do as much damage to the stock market as they can during a bull market.  Conversely, economic data is considered less of a risk during a bull market, leaving politicians as the primary risk factor.

Another distinction is that economic data can predict the future, while politicians cling to the past.

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