Beware the Jerk – How The Stock Market Trades on the Acceleration of the Economy

This post is from 5 years ago when Ben Bernake was at the helm of the Federal Reserve, but history is repeating itself. Learn why you should pay attention to the jerk when picking stocks.

The Small Investor

Ben Bernake, Chairman of the Federal Reserve,  was saying that by easing up on bond buying they would be easing off the accelerator rather than hitting the brakes on the economy.  Despite these assurances, the market has tanked, wiping out returns from June and May in two days.  The trouble is that the stock market trades on the acceleration of the economy rather than the velocity.  Changing interest rates may only effect earnings growth slightly, but this can have a big effect on the stock market which prices stocks based on expected future earnings.

In physics the rate of change in distance per unit time is velocity.  If you drive 50 miles in one hour, you have a velocity of fifty miles per hour.  The rate at which velocity changes is acceleration.  For example, something falling will go from zero feet per second to 32 feet per second over the period of…

View original post 383 more words

Comments appreciated! What are your thoughts? Questions?

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.