Question

On Tuesday September 19, 2017, in an interview with CBS News, Michael Bloomberg, the former New York City mayor, said that he is puzzled by why S&P 500 continues to rise despite the genuine problems that are plaguing the U.S. economy:

“I cannot for the life of me understand why the market keeps going up....Our economy has some real challenges: The infrastructure's falling apart, we're destroying jobs with technology, we are keeping the best and the brightest from around the world from coming to America to create new jobs and create new businesses....All of those things would give you pause to worry about the future.”

As a financial analyst, what would be your answer to Bloomberg’s “puzzle”?  (Please provide a concise answer).

Answer 1

My answer to Michael Bloomberg would be that market are often irrational in nature and they are trying to discount the future event which doesnot exist in the economy and there is not complete rationality of the market in respect to the current situation so markets are always trying to discount something which is not present in the current scenario and they are completely futuristic in nature so it can be said that market are highly futuristic and not completely efficient so Michael Bloomberg should have been not analysing the market according to the current scenario because there are certain things which are discounted already into the prices and these are often proactively discounted because markets are trying to be futuristic when the markets are going up or going down

There is not complete rationality and complete efficiency also on the part of the market participants and there is aa high level of irrational exuberance at times that will justify this prices.