Stock Market: Perception Plays a BIG Role
As we watch the Dow (^DJI) drop today — after a hope-filled rally yesterday — it is clear that perception has a lot to do with the performance of the stock market. Indeed, as Profsilver points out on Talk Stock Trading, a lot of what people decide is significant on the stock market (especially the significance of numbers like 8,000), is mental.
Stock prices determined by perception of value
We hear all the time that the market value is whatever people will pay. And that’s sort of the way the stock market works. When people perceive that a company is doing well, then they will pay more to own the stock. If they think it will do poorly, then they want to sell. And the more people who want to sell a stock, the lower the price, since no one will buy it at a higher price. It’s all based on perception of how a company or sector or market will do, and whether it is worth investing in.
The economy and the stock market
Right now, with the release of economic data, including unemployment numbers and housing market data, there is not a lot of confidence in the stock market. Additionally, since yesterday saw a rally, many are trying to sell and make a profit. The perception of things are going is very much affecting today’s drop in the stock market. As long as the economy is perceived to be in trouble — the as long as people think that the recession will drag out — the stock market is going to struggle.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
