Events and conditions do not make investors behave in any particular way that can be identified as shown in this analysis of the supposed relationship between interest rates and stock prices. So much for the popular claim that "Interest rates drive stock prices"!
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Macroeconomic news supposedly explains only about one fifth of the movement in stock prices but if there is no accommodating theory, then the presumed causality involved is tenuous at best. Let me explain.
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It is common for economists to offer a forecast for the stock market yet add a caveat to the effect that "If a war shock or terrorist attack occurs, then I would have to modify my outlook." As such, it would seem logical to assume that...they must have access to a study showing that such events affect the stock market, right? The answer is no, for the same reason that they do not check relationships between interest rates, oil prices or the trade balance and the stock market. The causality just seems too sensible to doubt.
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The belief that earnings drive stock prices powers the bulk of the research on Wall Street but this glaring exception to the idea of a causal relationship between corporate earnings and stock prices challenges that theory. Let me explain.
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