No! The stock market isn’t corrupt. It can be irrational, confounding, manic and illusory. But it’s not generally corrupt, at least in terms of traders regularly breaking the law and getting away with it.
Several Yahoo Finance readers asked us about the market’s integrity, on account of recent swings up and down that seem to have no obvious outward cause. Markets have been adjusting to new expectations regarding inflation, which explains much of the upswing in volatility we’ve seen during the last month. Some traders who had invested in exotic securities linked to volatility had to unload their positions, leading to several big selloffs that seemed to come out of nowhere. But this type of activity isn’t corrupt, it’s just arcane, and hard for ordinary investors to understand.
I asked a few of our esteemed Yahoo Finance staffers to take a crack at the question. Is the market corrupt?
Jared Blikre: “It’s not corrupt, but if you have a lot of money, you can buy better information and get an edge. That’s the way it’s always been. Before there were high-speed computer algorithms trading in the basement of the exchanges, there were specialists and market makers. They had access to everyone’s orders and traded profitably off that information.”
Myles Udland: “The stock market might seem stupid from time to time, but in the end it represents the estimated future value of corporate cash flows that are expected to be available to shareholders. So, it’s guessing at what earnings and dividends will be in the future. As for whether one can manipulate the stock market, there are some people in prison because the government says they did. But no, Goldman Sachs or Warren Buffett or the Federal Reserve or the Bilderberg Group does not decide if the stock market goes up or down.”
Sam Ro: “In the short-run it’s possible for big players to influence the price of a stock. A big purchase, or an upgrade, or a Barron’s cover… some people will illegally get in front of these. But in the longer-run, the answer is no. The market price always reflects the last trade, so you’d need an infinite amount of money to manipulate the market in a way that hurts investors.”
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman