While reading the title of this article may cause you to make certain assumptions about what you are about to read, I can assure you that this is not a politically motivated article. In fact, politics has absolutely nothing to do with the analysis and conclusions presented herein.
I want to start with the assumption that we have spoken about so often, and that it is that social mood directs our actions in life, including our willingness to buy stocks. As Robert Prechter noted in a study he published in 2012 on this topic, “[s]ocionomic theory proposes that unconscious social mood regulates social actions.”
The basic premise is that when people feel good they engage in positive actions, and vice versa. But, that really is an overly simplistic perspective of the theory. Ultimately, it suggests that biological responses have more to do with the mass sentiment as compared to exogenous events. Rather, exogenous events are actually caused by the mass sentiment of the public. Moreover, it suggests that mass sentiment directs our stock market in addition to causing exogenous events. Therefore, viewed from this perspective, the common understanding of causation for market direction is completely opposite of that which most believe. And, this premise is supported by many studies performed over the last 30 years.
I think it is best summed up within a paper entitled “Large Financial Crashes,” published in 1997 in Physica A., a publication of the European Physical Society:
“Stock markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind. Instead of the usual interpretation of the Efficient Market Hypothesis in which traders extract and incorporate consciously (by their action) all information contained in market prices, we propose that the market as a whole