top of page

The Stock Market is Drunk and Doesn’t Know It

As soon as September kicked off, glass-half-empty-market historians were preaching caution because September has statistically been the worst month for the stock market.

In fact, going back to 1928, the average September return for the S&P 500 has been a loss of 0.99%. And three-quarters of the way through September, the stock markets haven’t disappointed those glass-half-empty pundits.

All of them have their reasons for September’s pullback, but the latest worry revolves around Chinese real estate conglomerate Evergrande’s debt crisis. In fact, it’s been compared to the collapse of Lehman Brothers, which by many accounts kicked-off the Financial Crisis of 2008. And those same glass-half-empty-historians are quick to point out that Evergrande happened on the 13th anniversary of Lehman’s collapse.

But maybe there is a simpler explanation. Maybe the stock market is just drunk.

The Markets Might Be Drunk

Think about the behavior of a drunk person. We all have anecdotal evidence that suggests one’s personality changes when they’re drunk and there is plenty of research that suggests behavioral changes include an increase in extraversion and more risk taking.

But recent research from the University of Missouri published in the journal of Clinical Psychological Science suggests that most of the changes of a drunk person don’t show to others. And notably, the Missouri research suggests that the participants themselves reported that their levels of conscientiousness, openness and agreeableness changed after drinking.

The simplest explanation, suggest the researchers, is that drinkers may experience the greatest change internally.

The Stock Markets Fails a Breathalyzer

This was the title of an article written by Andy Kessler in the Opinion page of the Wall Street Journal on September 12th of this year. Mr. Kessler has some fantastic examples to support his opinion, including the following excerpts from his article:

  • Joby Aviation, which plans to begin an electric air taxi service in 2024, is worth more than Lufthansa, EasyJet or JetBlue. Does that seem right?

  • Earlier this year, Tesla was worth more than the next nine car manufacturers combined, though now only the next six.

  • Beyond Meat, made with pea protein, is worth more than the entire market for peas eaten globally.

  • Used-car sales platform Carvana is worth more than Volvo, Honda, Ford or Hyundai.

  • Airbnb is worth more than Marriott and Hilton combined.

  • Crypto-exchange Coinbase is worth more than the Nasdaq.

Kessler goes on to make fun of Adam Neumann, the founder of WeWork when Neumann said this: “our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.”

Oh and then he pulled this tidbit that epitomizes drunken behavior: “in June, an Italian artist auctioned an invisible statue for $18,000 – in reality it was an empty box the artist claimed was a “space full of energy.”

Back to the Missouri Researchers

The researchers at the University of Missouri aimed to objectively measure drunk behavior by giving groups of friends vodka-laced Sprite in lab conditions, asking them to perform certain tasks and having strangers observe.

Here is the summary: “People in the drunk groups were observed to be more extroverted than those in the sober groups, with observers using a system that measures five factors of personality. They also found – though less conclusively – that drunk people seemed less neurotic. But in the three other areas studied – conscientiousness, openness, and agreeableness – the observers didn’t notice any difference.”

What Should We Conclude?

It is not a far stretch to conclude that the market is inebriated some. Whether it’s drunk or not is hard to say. But even if the stock market is drunk, it might not be exhibiting drunk behavior as much as it thinks. Then again, it depends on your vantage point.

Nonetheless, most of us would agree with the notion that your drunk personality has a lot in common with your sober personality. But ask yourself this:

Do you want to buy an invisible statue?


bottom of page