Brief Treatise on Market Reaction to Information

How is it that one hundred thousand jobs lost, let alone one job lost, is an improvement unless your ambition is high unemployment? This rationale is both illogical and insulting to those with a mind geared towards the pursuit of reasonable expectation and knowledge. This same market reaction is the diametric opposite of the necessary reaction found in the human species. Humans, by emotional definition, have several reactions to negative information, though I would argue that these can be broken down into three macroemotions: apprehension, indifference, and elation. Apprehension is the predominant reaction in mankind and could, within reason, arguably be the "natural" reaction to negative information. However, indifference is a possible "natural" reaction as negative information may be of such little impact to the individual that no apparent reaction is needed to offset the emotional stirrings. Yet elation is the counterintuitive reaction to negative information. Could one then definitively say that elation in this context is a signal of a mental disorder such as sociopathic tendencies or more likely a signal of the completion of ulterior objectives?

Therefore, one must, along this line of thought, reason that those who are elated at negative information like job losses must either be sociopathic or motivated by something other than legitimate and rational reactions. Yet when one considers the gargantuan number of individuals combining macroemotions in order to reach market consensus and sentiment, it is a violation of rationality to assume these individuals are all sociopathic. Necessarily, these market components are likely motivated by something irrational. This motivator is expectations. The danger inherent in allowing expectations to dictate behavior comes from the accuracy by which the expectation is set. Most expectations are arbitrarily set in the minds of market individuals, as well as most humans in general. Whenever these expectations are far from the realized situation to the positive or the negative, it is very likely that emotional reaction will be equally extreme. The interesting and observably irrational reality is that the emotional reaction to negative information within the market is elation. The elation stems from the fact that the arbitrarily-set expectations are set inaccurately low relative to the likely reality time and time again. Thus, any information, despite an inherent negative affect, is received as positive, thereby spurring irrational, illogical macroemotional elation. By returning to the initial question, one can see clearly now that the market reaction to negative information about jobs, earnings, or any other expectations-based information is often based upon irrational elation rather than fundamental reality.

What then is the realistic solution to this complex issue? Perhaps a lucid approach would involve a realignment of goal setting criteria in a manner which addresses the increasingly low expectations. This can be achieved through several means, one being a reduction in reliance upon sentiment surveys such as the infamous economist consensus surveys. These metrics are often naturally flawed as they aggregate macroemotions, the very fallible reactions to information releases. Furthermore, these metrics rely on aggregate data resulting from a number of techniques applied to sets of numbers rather than one overarching methodology. Consequently, the combination of potentially inaccurate macroemotional responses to potentially inaccurate data results in a low expectation set. By forcing less reliance on these and other metrics, expectations are likely to rise, and the market sentiment will be more in line with "natural" macroemotional reactions to negative information.