The market can be finicky over the short term.
This has particularly been the case over the past few days, with stock prices fluctuating widely. Some stocks have been excessively volatile. Take Mastercard for instance, shares fell 10.6 percent on Monday, rebounded 10.6 percent on Tuesday and fell 5.9 percent on Wednesday. The stock gained 7.7 percent yesterday. One does not have to be an expert on Mastercard to assume that its business does not change that much on a daily, or even weekly, basis.
In his classic book, "The Intelligent Investor," Benjamin Graham described Mr. Market as a business partner who "lets his enthusiasm or his fears run away with him." The description certainly applies to the erratic price movements we are currently seeing. Over short periods of time, the markets do not act in a rational manner.
This is not to say that everything is fine or to ignore some of the recent headlines. Economic growth has been slower than economists expected and could remain sluggish for the foreseeable future. The risks of a recession have increased. Standard & Poor's downgraded the United States' credit rating. People are worried about the economy, the stock market and now, French banks.
Yet most of this is not surprising. There have been several economic reports that pointed to sluggish growth. The U.S. debt exceeds $14 trillion, and our elected officials in Washington have yet to agree on a long-term solution, whether it is based on Simpson-Bowles or an alternative. Predictions of when the Federal Reservewill raise interest rates have proved to be premature, as Tuesday's Fed statement made even clearer.