I love the stock market. I love it in a thoroughly mercenary way because it provides the most honest snapshot of public sentiment that no mass poll or sophisticated focus group can match. Last week, the stock market spoke with absolute honesty about what it thinks of the economy. Perhaps this week it will reveal what it thinks of President Vladimir Putin as well.

The most common joke I saw in traders’ chats on Friday was “A rare long will live to see the middle of the session.” Those longs, who buy stocks in the expectation that they will rise, have been suffering for 16 weeks. But last Friday brought a genuine collapse. After all, the MOEX index had never lost 5% in a single day before.

The stock market is the most honest and fastest public-opinion poll because it takes place in real time and aggregates the views of many thousands of participants. Some are extraordinarily smart and well informed; others are naïve and susceptible to manipulation. But all of them are risking their own money, which makes them exceptionally candid and their actions maximally visible.

Yes, this market, like any society, can be wrong. It can be self-deluded and even become the victim of manipulation. But it is also quick to return to reality precisely because errors and delusions must be paid for out of one’s own pocket. It is a cynical market not held back by moral qualms. That is why the MOEX index rose quite happily when Russian missiles were turning Ukrainian cities into dust and the Iranian regime was attacking tankers and hanging protesters.

So what happened? The answer is simple: traders lost hope.

First of all, they lost faith that listed companies’ shares and bonds would produce profits. 

Why? Because industrial output, which seemed to have begun recovering, is now falling again, largely thanks to oil companies benefiting from higher oil prices after the Strait of Hormuz was closed.

Extractive industries fell 2.7% in May after growth in March when it became clear that high oil prices could not be maintained.

Oil refining was down 13.5%, while metallurgy was down 12.8% — both historic records.

Manufacturing output, which includes the defense sector, has increased but only modestly. It appears that its capacities have reached their ceiling.

There is no point even discussing retail and services, whose stocks are not popular anyway. Developers are on the brink of bankruptcy and investors have long been fleeing their shares.

As output falls, so does investors’ hope that companies will make profits. No profits mean no dividends for........

© The Moscow Times