Most of us not in the equities business understand pricing on anticipation of future events and that the computers are programmed to buy/sell based on certain real time information, like today's inflation report.
What I don't understand is why the programs seem to take such extreme measures based on a single day's data. Inflation was "expected" (meaning it was the street's WAG) to be 0.2% (2.4% annual) in January, but instead it came in at 0.3% (3.6% annual), and this small change caused a 2% selloff. Why aren't the computers programmed to take a longer view of the market and adjust accordingly? Does a report of 0.3% inflation last month merit a 2% drop in the market? Is one inflation event (from last month) where the rate is still historically low going to make the Fed not lower rates? Does the 0.3% signal an inflation trend, and if that's the case, wouldn't we know about the trend last week when the market was up by other indicators?
It just seems kind of extreme and simplistic, like we're determining long term market trends based on one data point, and redoing it every day.
What I don't understand is why the programs seem to take such extreme measures based on a single day's data. Inflation was "expected" (meaning it was the street's WAG) to be 0.2% (2.4% annual) in January, but instead it came in at 0.3% (3.6% annual), and this small change caused a 2% selloff. Why aren't the computers programmed to take a longer view of the market and adjust accordingly? Does a report of 0.3% inflation last month merit a 2% drop in the market? Is one inflation event (from last month) where the rate is still historically low going to make the Fed not lower rates? Does the 0.3% signal an inflation trend, and if that's the case, wouldn't we know about the trend last week when the market was up by other indicators?
It just seems kind of extreme and simplistic, like we're determining long term market trends based on one data point, and redoing it every day.
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