Yes, the market does react to good/bad news. There is some bad news today. Job losses for January wereworse than predicted. Study the chart at the link and see just how dramatic those gains/losses can be.
For years the DJIA was drastically over valued.Many economists warned that the market was over valued.Folks continued to buy stock inthat over valued market. WhenLehman Bros and Merrill Lynchwent belly up the correction was sudden and dramatic.
On 9 October, 07 the market reached an all time high of 14,000+.On 15 September, 08 the market reactedto the bankrupcy of Lehman Brosand Merrill Lynch. For the rest of September andOctober of 08 the market reacted with somedramatic gains and losses due to bank failures and efforts of the fed, the SEC,and congress to prop up the banks. By 1 October, 08 the market had lost about 2,700 points from its all time high.By 9 October, 08 the market had lost 5,585 points or39 percent of its value inaone yearperiod.
On 1 December, 08 the DJIA lost 680 points to close at 8,149. The market has lost about 1,115 points since 1 December, 08.2009 daily losses are notas severe as in 08: This is largely because the market has contracted. Me thinks that the absolute worse case bottom is somewhere around 5,000.
The history of the DOW.
http://www.mdleasing.com/djia.htm
Does the stock market reflect the economic trends.
