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Source: ThisIsEngineering on Pexels.

The Stock Market is Disconnected From Reality

This is what we’ve been hearing for the last few months.

And, it isn’t true.

Because it isn’t.

No matter how much we want to believe that the stock market is some thing that exists in a black box that discredits reality, our opinions don’t really matter.

The stock market is a market, like any other market you’ve experienced.

As much as we want to believe the cover on The Economist, where it headlines a widening gap between “Main Street and Wall Street” as

a dangerous gap.

It isn’t true. The stock market isn’t disconnected — in fact, it’s the most connected thing we have to reality. Stock markets don’t follow pieces of isolated media, whatever is buzzing on your social media feed, any kind of breaking news story on your local news.

It’s a place where entities and people can come together to price things. And they do that with the infinite help of projections, reprojections, models, remodels, etc.

Today, in the morning, the jobs report came out for May. It turns out that we added 2.5 million jobs, marking a huge surprise. Many people were thinking that unemployment was going to continue to rise.

It didn’t.

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Source: Bureau of Labor Statistics, May 2020.

This number is likely to go up, while the unemployment rate is likely to continue falling:

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Source: Bureau of Labor Statistics, May 2020.

Markets are the most connected thing you’ll ever find. I don’t know of another place where you can so fluidly find a buyer and a seller for an equity or financial instrument who agree to pay a certain price for it. If that’s not reality and connection, I’m not sure what is.

Over the last few weeks, nearly every editorial has been crying out for the disconnect with Wall Street. It turns out that Wall Street was valuing things correctly, as the jobs report confirmed.

It’s not looking at hysteria. Most times, the markets avoid emotion (outside of recent events). In general, prices on the market are forward projections. Investors are looking out a few years to price something accordingly.

I never understood people who talk about markets as if the way it behaves today is somehow off-course from the general trend of history.

Written by

UC Berkeley, mathematics. Los Angeles. Long-time runner. Top writer on Quora, 100M+ total content views. New to Medium. Inquiries: Moumj@berkeley.edu

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