This story is part of, CNET’s coverage of how to make smart money moves in an uncertain economy.
If there’s one thing I’ve learned in all my years of reporting, it’s this: The stock market is moody.
In 2006, I began a new role as a financial correspondent reporting from the trading floor of the New York Stock Exchange. My job was to make sense of why the market was up or down each day. I’d start out each morning interviewing mostly older, white male brokers who were in charge of buying and selling shares on behalf of large institutional investors. (Also true: I was required to wear closed-toe shoes and a blazer. The dress code then was strict and a bit ridiculous.)
I learned if tech stocks slumped just after the market opened, it might have been due to lower-than-expected earnings the evening before from an industry giant like Apple. Any hint of turbulence in the tech sector induced panicked brokers to drop shares at the opening bell.
The market doesn’t actually reflect reality. It measures the moods and attitudes of people like the brokers I used to interview.
“Today’s stock prices aren’t because of how businesses are performing today,” said Matt Frankel, a certified financial planner and contributing analyst for The Motley Fool, in an email. “They are based on future expectations.”
That’s the problem: Current prices serve as a gauge of investor confidence, but stock market predictions are, at best, educated guesses. And to further complicate matters, “the markets are not always correct,” according to Liz Young, head of investment strategy at SoFi.