The G20 and the stock market sell-off

I wasn’t particularly enthusiastic about the outcome of the G20 summit.  But the Post’s attempt to link a less-than-ambitious summit communique to Tuesday’s dramatic sell-off on stock markets is pretty ridiculous:

“The worldwide drop seemed to be a verdict from investors on the results of the recently concluded Group of 20 summit in Toronto. World leaders’ pledge to cut government deficits and sustain economic growth will be easier said than done, the markets judged.”

Oh please.  We’re supposed to believe that investors were expecting some very specific new policies to come out of the summit, and when the bland communique was released on Sunday they read it, then to decided to wait one day, and then on Tuesday expressed their views on the summit?  Give me a break.

As a general rule, any time the media tries to give a causal explanation for movements in the stock market, I suggest you take it with a grain of salt.  Moreover, the trend of  treating stock markets as an instant judgement on economic policymaking – markets up, policy is a success, markets down, policy is a failure – is both misleading and inappropriate.  Beyond being fickle and unpredictable, stock markets are simply not a good proxy measure for the overall health of an economy.  When the market goes up, it is partial evidence that one segment of the economy is doing well, but that’s about it…

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