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Whenever stocks go down, the real reason is that there is fewer people buying stocks than selling. The justification is obvious: if we know a recession is comin

Whenever stocks go down, the real reason is that there is fewer people buying stocks than selling. The justification is obvious: if we know a recession is coming, the gains in stocks will take a hit, and people don't want to buy something that will lose value. So investors will stop buying stocks and some people who are more sensitive to price drops will sell their stocks.

lupire 5y ago
On other words, fear of a recession creates a recession. This is why the government measure of recession-resistance is called "consumer confidence", not "consider spending" ("aggregate demand").
- grapescheesee 5y ago
  And if one repeatedly states a narrative?
- randbox 5y ago
  A credit bubble may pop due to loss of confidence, but the loss of confidence is not purely non-deterministic psychological phenomena, it is due to the interest owed on the debt held by speculators which bought financial assets on credit exceeding the expecting asset price gains from buying or holding more assets. When speculators stop buying more assets on credit, asset gains dry up, and those which bought assets on credit or by slowing payments on other debts in hopes of making gains still have to make payments decreasing quantity of money in market causing sell off.
TekMol 5y ago
fewer people buying stocks than selling What do you mean? The amount of stocks bought and sold are always exactly the same.
- Adrox 5y ago
  Pay attention to the words. Fewer people buying stocks than selling. The amount of stocks "bought and sold" are the same, the amount of people is not. If what you are saying is true, stocks would always be at the same price since the amount of stock bought and sold are the same! If one day there are 100 people that want to buy the stock, and the next day there are 10 people interested, the prices will fall.
- throwawayninja 5y ago
  They mean "fewer people willing to cross the bid-ask spread to buy a stock than the number of people willing to cross the bid-ask spread to sell a stock"; what matters is who is crossing the line? if it's the buyer side of the transaction, price trends up. If the seller is accepting a small % loss on the sale, the price trends down.
xorfish 5y ago
The number of shares sold and bought are always exactly the same.
avirut 5y ago
In that case, shouldn't recessions instantly resolve themselves? When the price in stocks goes down significantly there's pretty much a guarantee that it'll come back up eventually, so wouldn't any prudent investor buy the dip? As the parent comment said, the only explanation that really adds up would be that the amount of "available money" in the economy must be going down as a result of defaults on credit.
- coliveira 5y ago
  There are many factors that enter in this calculation. One of that we don't know which companies will survive a recession. This seems to be an easy answer when looking at Google or Apple, but it is not so clear otherwise. For example, many banks didn't survive 2008. Many tech companies didn't survive 2001. Nobody knows what will be the next group of victims in the coming recession.

lupire 5y ago

On other words, fear of a recession creates a recession. This is why the government measure of recession-resistance is called "consumer confidence", not "consider spending" ("aggregate demand").

grapescheesee 5y ago
And if one repeatedly states a narrative?
randbox 5y ago
A credit bubble may pop due to loss of confidence, but the loss of confidence is not purely non-deterministic psychological phenomena, it is due to the interest owed on the debt held by speculators which bought financial assets on credit exceeding the expecting asset price gains from buying or holding more assets. When speculators stop buying more assets on credit, asset gains dry up, and those which bought assets on credit or by slowing payments on other debts in hopes of making gains still have to make payments decreasing quantity of money in market causing sell off.

TekMol 5y ago

fewer people buying stocks than selling What do you mean? The amount of stocks bought and sold are always exactly the same.

Adrox 5y ago
Pay attention to the words. Fewer people buying stocks than selling. The amount of stocks "bought and sold" are the same, the amount of people is not. If what you are saying is true, stocks would always be at the same price since the amount of stock bought and sold are the same! If one day there are 100 people that want to buy the stock, and the next day there are 10 people interested, the prices will fall.
throwawayninja 5y ago
They mean "fewer people willing to cross the bid-ask spread to buy a stock than the number of people willing to cross the bid-ask spread to sell a stock"; what matters is who is crossing the line? if it's the buyer side of the transaction, price trends up. If the seller is accepting a small % loss on the sale, the price trends down.

xorfish 5y ago

The number of shares sold and bought are always exactly the same.

avirut 5y ago

In that case, shouldn't recessions instantly resolve themselves? When the price in stocks goes down significantly there's pretty much a guarantee that it'll come back up eventually, so wouldn't any prudent investor buy the dip? As the parent comment said, the only explanation that really adds up would be that the amount of "available money" in the economy must be going down as a result of defaults on credit.

coliveira 5y ago
There are many factors that enter in this calculation. One of that we don't know which companies will survive a recession. This seems to be an easy answer when looking at Google or Apple, but it is not so clear otherwise. For example, many banks didn't survive 2008. Many tech companies didn't survive 2001. Nobody knows what will be the next group of victims in the coming recession.