The stock market is a market for stocks. We have said this often enough. It means that stock prices (in the short term) are determined by the usual dynamics of market demand and supply, just as the price of any other market-driven assets, goods or services would be. For example, when there is a surge in demand (strong buying interest), the stock prices go up. Conversely, when the number of sellers overwhelms buyers, prices fall.

In other words, short-term market gyrations are a reflection of investor sentiment and emotions of the moment, whether it is panic, euphoria or ambivalence. You should, therefore, constantly remind yourself that the reasons analysts give for market gains and sell-offs are, very often, simply narratives tailored to fit the story, told in hindsight. The reality is that the stock market is not the economy, although it is generally efficient in reflecting future economic and corporate fundamentals.

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