Fear and Confidence: these are the two key emotions which drive markets, risk, speculation, and investment.
More psychological than scientific, the stock market is reacting to the churning anxieties of investors jittery about tottering sovereign debtor nations, the sluggish global recovery, and the waning resolve of international leaders to reinstate confidence in their nation's consumers.
Consider the following uninspiring events in the last week. The United States Congress refused to raise its debt ceiling until the last minute before risking massive default. Growing worries about sovereign debt in the burdened Mediterranean States has set investors around the world on edge whether the Eurozone can salvage its incipient currency and bolster international banks from losing their massive deficits and failing en masse.
Yet the driving forces are irrational. Fear, worry, caution, lack of confidence are causing more damage than the actually debt and decline which will follow those states and investing firms which stand to lose on their investments.
The irrational psychology jeopardizing stock-market trust is overblown. Yet every potential safeguard by the state will not stop the inevitable corrections, but prolong the pain of investors around the world.
Markets run on fear. Investors can move by facts or faith, however they choose.