Silly? What do you mean….
January 22nd, 2008It’s been an interesting day. European equities markets started the day in ultra-bearish territory, kicking off with a 4.5% drop in the Stoxx 600 Index, a benchmark of the six hundred biggest companies in Europe. After a good hour of trading a sticky rumour hit the markets that we would see a coordinated rate cut by the Fed, ECB and Bank of England. This immediately reversed sentiment, making the Stoxx 600 move back to Monday’s closing level in a matter of an hour.
After lunch it was the Fed who actually delivered with a 75bp rate cut, which set the stage for another leg up, leaving the Stoxx with a 2.2% gain for the day.
So let’s get this straight. The market capitalization of the average multi-billion European company changed with about 7%in the course of 8 hours. And then there are still people who honestly believe that market participants rationally reflect all information in prices and sentiment only plays a modest role in markets. What a day!