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Why Did Stock Values Increase on June 13th?

Emblem of Qatar

After a brief slide, stock prices in the U.S. turned around and headed up on June 13.

Neither the slide nor the upward bounce was of historic significance by itself. The S&P 500 closed June 8, Thursday, at 2433.78. It closed the next day at 2,431.23. The following Monday, down somewhat again, to 2,429.48. So, as I say, on Tuesday it rose, closing at 2,441, reversing (by more than double) the losses of the two previous days.

This could be simple "random walk" stuff. But ... what brings it to mind is the way this particular bounce immediately became an item in political debate. Because June 13th happened to be the day Attorney General Jeff Sessions testified before Congress about Russia, Comey, and so forth, Trumpites drew a connection via social media even as Sessions was talking.

Mr. Market presumably approves of Trump, wants a vigorous Trump administration, and so cheered as Session rebuked that administration's foes. That's their story.

It has some obvious holes in it. Instead of discussing them in depth, let's just identify one of the (many) alternative hypotheses about the rise in stock prices that day which are equally plausible.

Perhaps Mr. Market believes that his interests are bound up with the interests of the royal family of Qatar. The week ending June 9th was a bad one for that family, with may of the other Arab states lining up against it, with the approval of the US administration. But by Tuesday the worse seemed to have passed. Both Turkey and Iran made it clear that they supported Qatar against its closer neighbors. Also, the United Arab Emirates backed off at least a bit, issuing a statement on Tuesday that said there would be "no military component" to the actions against Qatar.

It seems to me at least as plausible that small changes in a broad based index can be traced to the troubles and relief of the House of Thani as that they need to be traced to the troubles and relief of the House of Trump.

Another problem with the theory of course is that Sessions didn't do well.  I don't know of anyone who was favorably impressed by his testimony who wasn't very much primed to be favorably impressed, and their views had presumably already been discounted. It is hard to imagine any stock analyst or market maker who would have been hanging on the testimony and who would at some point Wednesday have shouted "NOW is the time to buy US equities again!"

The broad lesson here, though, is that trying to read the mind of the market on a day to day basis is a fool's errand. And it is so for philosophically weighty reasons, but I've written about them before -- in this blog and elsewhere -- and won't give one of those lectures again just now.

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