While that may be true, government decisions or policy changes, however, can be just as effective in controlling market direction. Such was the case yesterday when the Chinese government announced a tripling of the tax on stock trading to curb excessive speculation. The response was swift as the Shanghai Index lost 6.5% for the day.
Most world markets joined in the early sell off, but recovered later on and, in the case of the S&P; 500, a new lifetime high was made. The chart below shows yesterday’s price activity of the Shanghai Index vs. the S&P; 500:
While there could be many reasons, I think one of them is that it is now almost expected that the Chinese market at one point in the future will correct sharply. Wall Street tends to react more kindly to anticipated events as opposed to sudden surprises.
Second, the release of the minutes from the last Fed meeting gave the bullish crowd further ammunition to push the major indexes higher. The minutes said that, although housing weakness continues to go on for longer than expected, the SubPrime markets appear to have been relatively stable.