Here’s why its so dangerous to read specific elements into the day to day gyrations of Mr. Market: Consider this hypothetical news article:
"On Thursday, Congress extended for two years the 15% tax rate on capital gains and corporate dividends, scheduled to expire on 12/31/08. They also extended for one year a "patch" on the alternative minimum tax, or AMT.
Market participants, concerned about burgeoning US deficits, promptly sold off. The Dow dropped nearly 150 points, while the Russell 2000 lost 2.38%. Tech stocks were also hard hit, as the Nasdaq dropped more than 2% and the NDX 100 2.20%.
The consequences of the Tax cut and increasing American debt were felt as far away as Japan, where the Nikkei Dow lost 2.3%."
I’m (obviously) being sarcastic. I don’t believe the markets cared one bit about the tax cuts. But if the markets didn’t sell off, you can be sure our pal Stephen Moore would have been out crediting any rally to the congressional action.
Bottom line: The mechanisms and forces driving Markets are far too complex and forward looking to credit or blame any single element for any given day’s trading. Something to remember the next time you hear someone say Markets did ____ because of ____.