Last week's stock surge is already almost a distant memory, as new negative sentiment on Tuesday about European banks pollutes the markets.
But it's still important to understand what happened last week to drive prices upwards.
An interesting explanation comes from John Hussman, an economics PhD who heads the $8-billion Hussman Funds group in Ellicott City, Md.
In his weekly commentary, he outlines how the market reacted selectively to the economic data that powered the gains.
Mr. Hussman writes: "The elevated focus of investors on small bits of news is palpable, and can be observed in the recent series of days where more than 90 per cent of stocks have been either up or down. These strong responses to day-to-day news are somewhat understandable, because a further economic downturn is not well-priced into the market, and would most likely prompt a whole host of policy dilemmas."
Investors were at fault of overreacting to economic data released last week and for miscalculating the relationship between leading and lagging information. Specifically, he says, they need to appreciate that economic data and market movements do not occur in perfect symmetry.
"Suffice it to say that it is premature to interpret last week's somewhat benign data as an "all clear" signal for the economy. Yes, this time may be different, and we may somehow skirt evidence that has historically been reliable, but we don't have a clear logical justification based in other data to support a rosy view," Mr. Hussman writes. "From my perspective, economic risks continue to be quite serious."