Market theory tells us that the stock market is a near-perfect gauge of the collected knowledge of participants. Now, everyone under the sun knows that we are approaching the anniversary of 9/11 and that there’s a heightened likelihood of a terrorist attack of some kind. This is not exactly a secret.
The market, you’d think, has taken this information into account, right? Wrong. Stocks, which were showing modest gains this morning, dropped suddenly after the government announced a heightened “orange” alert. Shouldn’t this have been a “duh, of course” moment? Are there really hordes of investors sitting there saying, “Ohmigod, I had no idea there was an anniversary of a terrorist attack coming up! Thanks, government, for warning me — excuse me while I put in my sell order.”
Not exactly. Instead, what today’s gyration indicates is that markets — in the sort term, certainly — are amazingly irrational. People buy and sell based on emotion, hunch, hearsay — even the color of a government terror warning that tells us what we already know.
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