Stock Market: Analysts Know What They're Doing

This column has discussed the sometimes eerie behavior of the stock markets on more than one occasion, but the market's most recent gyrations cry out for comment.

Although most people couldn't be more bored by the daily doings of the business community, I've always found them to be fascinating (or at least since my days at New York University, 1958-64, when I dallied in management, accounting, marketing and advertising.)

By way of explaining why the market interests me -- I assure you it's not because of the millions I have invested -- I once worked for the Commerce and Industry Association of New York, where I became familiar with some of the world's largest companies.

Watching the Financial Parade

This sparked my interest in business, and it wasn't long before I found that following the antics of the stock market is a great way to watch the financial parade.

I've marveled at the way stocks behave when there's news affecting companies -- or when there's no news! I've been amazed by market analysts' comments about specific companies, industries, markets and economies. But the recent strange occurrences have taught me a great deal.

Stocks Behave Inexplicably

Stock prices are affected by many things. While earnings and potential are major factors, such things as price-earnings ratios, sales outlook, competition, quality of management (often based on a single executive) and the economy, among others, have significant impact. Nevertheless, the way stocks behave is inexplicable.

Individual stockholders (the little guys) buy a few shares of a stock with the hope that the company's sales and earnings rise. But, too often, a company announces earnings have doubled or tripled, elating stockholders -- until they find their stock has tumbled on the news.

Dubious Explanation

Analysts explain the fall by saying sales and earnings are not likely to remain at such extraordinary levels.

Meanwhile, the little guy sees other companies report disastrous sales and earnings, but those stocks leap higher, based on analysts' statements that improvements are expected in the next quarter.

If a stock rises on expectations that sales and earnings would be higher, you'd expect some adjustment downward if a disappointing report comes in. But, often, that's not the case.

Techs Don't Follow the Rules

Then there's the tech stocks. Any stock that has anything to do with the Internet is regularly pushed higher -- these stocks don't follow the rules. They have risen en masse through the ceiling without explanation. Few of them have any earnings whatsoever.

Analysts tout some stocks and industries for weeks, pushing their prices up -- but, generally, their prices fall suspiciously not long afterward. Somebody made a lot of money on the moves!

As a market watcher from the outside -- I'm no Alan Greenspan -- I have to wonder: Who's minding the store? It appears stocks are being played like a fiddle.

While there are occasional investigations and arrests in connection with insider trading and market manipulation, we wonder: Are regulators watching the markets closely enough?

I wonder.

I wrote this column as a "My View" for The Hour newspaper of Norwalk, Conn., on Aug. 22, 1998. I now write my views on a wide variety of topics on HubPages.