The market performance is driven by news to move up and down and often used as an indicator of whether the news is positive or negative towards the economy. In general, it is a good indicator as the market performance can show the change in investors’ expectations of the future economic performance, especially the general performance of firms. Maybe one or two investors’ changes in expectation do not reflect the true nature of news; the market as a whole can reliably reflect the nature because it is less likely for the entire market to be wrong and often the future is actually driven by people’s expectations.
However, we cannot ignore that the market sometimes overreacts or underreacts to information. The up and down changes of the market can be caused by various factors. It can be market is self-correcting that the market can be too excited at the beginning then calm down afterwards. Or the market is driven by speculators who are seeking gains from the volatility of market. Or both. Therefore, in terms of reliability, we may be able to say that the implication of the market performance is reliable to some degree, but we need to always be aware of the market performance is one indicator which has its weakness and there are many other indicators. To have a full image, we need to see from many different angles and this does not only work for the economy.
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