Stock Market Surprise

The stock market plunged 680 points yesterday, after hearing the official news that we’re in a recession.  We’ve been in a recession since December 2007.  But you don’t get the official Recession Achievement Badge until the National Bureau of Economic Research says you’re in a recession.  Generally, this is believed to be when there have been two quarters of negative growth, but like every easy formula, it turns out to be just something they tell the public.  It’s more complicated.

Still, everybody knew we were in a recession, and it was only a matter of time until that was announced.  So why did the stock market dump?  The stock market is supposed to aggregate information from the wisdom of crowds and use that correctly price stock.  But the only information that changed was that we went from “unofficial recession” to “official recession”.  I use quotes, against my better judgement, because the National Bureau of Economic Research is actually a private body.  If this was something that everyone knows, and an announcement that everyone know would come, how could it change the information available to this supposedly near-perfect pricing mechanism?