Market is deeply flawed

Whether the stock market goes up or down in any time period is generally not a great snapshot of the ‘health’ of the economy. Firstly, stock market is really bad at figuring out hidden valuation bubbles, until it all comes crashing down. The market had a great run prior to the dotcom bubble, housing crisis, ‘87 crash or the Black Monday, and about every crash. Sometimes underneath rosy-looking gains, there is a time-bomb of misallocated resources. When politicians can ordain things like ‘quantitative easing’ and lower or raise interest rates at will, you are going to have suboptimal decisions that may lead to horrible outcomes. Lastly, the market is made up of humans.

We’re limited in our capacity to fully understand how every other human on the planet interacts with this massive thing we call an ‘economy’. Everyone has biases, limited information, and personal limitations. At the end of the day, market is really just a reflection of the constant tug-of-war between buyers and sellers, all with their own unique opinions. It’s merely a general consensus on a million different, flawed perspectives, which can never resemble anything close to a perfect reflection of economy. The market is deeply flawed and often a poor ‘snapshot’ of the health of an economy, but it is a reflection of how adaptive an economy can be which is ultimately critical for its long-term health and growth.