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“Why Is the Stock Market Falling?” – (Not Because of These Reasons)

Here’s what happened after the S&P 500 had its first negative earnings quarter ever

by Bob Stokes
Updated: April 26, 2022

Financial journalists almost always mention "reasons" for a given day's market action.

For example, on April 22, an intraday Marketwatch headline gave two reasons for that day's plummeting prices:

Why is the stock market falling? Dow drops over 500 points as investors weigh Fed's policy path, earnings

Prices fell considerably further on April 22 after that headline published, however, the question is: Are the Fed and earnings the real reasons the stock market cratered?

Elliott Wave International's extensive research reveals that the answer is likely "no." The evidence is overwhelming that news -- whether positive or negative -- does not determine the market's trend. (Besides, on any given day, the news is usually a mixed bag anyway. You can always find a bullish or bearish "reason" for stocks to go up or down. Mainstream market observers simply pick from that bag what fits the day's price action.)

As cases in point, let's review the Fed and earnings as supposed "causes" of stock market action, given these two factors were mentioned in that headline.

Let's start with the Fed and a bit of history. The chart is from the March 2019 Elliott Wave Financial Forecast, which shows the lack of correlation between Fed behavior and the stock market:


The Fed cut interest rates 13 times from 2000-2003, yet the S&P 500 still declined 51%. Again in 2007-2008, the Fed cut rates 10 times, but the S&P declined 58% from August 2007 to March 2009. Subsequent to that, 9 Fed rate increases starting in 2015 didn't stop the stock market from rallying. Simply put: The Fed does not control the trend of the stock market.

Regarding earnings, this chart is from the Dec. 2009 Elliott Wave Financial Forecast:


You'll notice on the chart that in Q4 2008, the S&P 500 had its first negative earnings quarter ever. According to conventional logic, stocks should have crashed afterwards. Instead, a rally started in March 2009, which stretched all the way into early 2022.

So, you see why Elliott Wave International's analysts do not look to the Fed, earnings -- or any other factor outside of the market when formulating a stock market forecast.

Instead, they look to the market itself -- which unfolds in repetitive price patterns, in accordance with the Elliott wave model.

Indeed, our April Elliott Wave Financial Forecast provided this warning to subscribers:

Patterns in the indexes are at junctures where they should resume the decline from the November and January highs.

The Elliott wave model does not promise perfect forecasts, yet, in our view, it does reflect how financial markets really work.

Learn what Elliott Wave International expects next for U.S. stocks by following the link below.

You Can Know What All Investors Want to Know…

...Namely, "What's driving the stock market?

That's the question all professional money managers and retail investors alike want answered.

The problem is: Most speculators look to the headlines for their answer. They're searching for the "trigger" that ignites the next price move.

But, EWI's extensive research reveals that news does not drive the trend of the main indexes.

What does?

The answer is: collective investor psychology. That's the insight that every investor is seeking.

You see, Elliott waves reflect the repetitive patterns of this collective psychology. In other words, when an investor knows the message of the Elliott wave pattern of the stock market, that investor can prepare for what's next with a high degree of confidence.

Learn what our analysts are saying about major U.S. financial markets, including stocks, by subscribing to our flagship Financial Forecast Service today.

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All month long, Financial Forecast Service helps you stay ahead of the waves in the U.S. markets on the timeframes that matter the most. FFS covers the stock indexes, bonds, gold, silver, the U.S. dollar, as well as market psychology and cultural trends. It is our most popular service.

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