The S&P 500 experienced a significant drop in the final hours of trading, reflecting the prospect theory's idea that the pain of a loss is greater than the expectation of a gain. President Biden calls for a ceasefire in Gaza and more protection for aid workers. Bond prices rise, yields decline, and oil rallies. Neel Kashkari questions the need for rate cuts if inflation remains stable. Despite the decline, the S&P 500 is still close to last week's record highs.
One of the pillars of behavioral economics is the so-called prospect theory , the idea that the pain of a loss is far greater than the expectation of a gain. That insight, developed by Daniel Kahneman, winner of the 2002 Nobel Memorial Prize in Economic Sciences, was very much in evidence on Thursday as the S & P 500 dropped 100 points in the final two hours and thirty minutes of trading.
On Thursday, President Joe Biden spoke with Israel's Prime Minister Benjamin Netanyahu, calling for an immediate ceasefire in Gaza and more protection for aid workers. News reports that Israel was preparing for possible retaliation from Iran also surfaced. Bond prices rose, yields declined, and oil rallied. Later in the day, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, said that if inflation continues to move sideways, then he wondered whether the Fed should cut rates at all this year. Despite Thursday's declines, the S & P 500 is only 2% from last week's record highs
Prospect Theory S&P 500 Drop Trading Loss Gain Biden Ceasefire Gaza Protection Aid Workers Bond Prices Yields Oil Rally Inflation Rate Cuts Record Highs
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