Earlier today, a certain economic report was suddenly publishing across all of the mainstream newswires. In addition, a friend of mine, who casually follows markets, said to me that this report is the sole reason for markets dropping as quickly as they did. So, what happened? And are the economic events real market movers?

First, let me tell you the economic report that my friend was quoting: Conference Board’s Consumer Confidence Index. If you looked at the news headlines and TV shows of the morning, you also saw headlines like this about an impending economic slowdown:

To the new trader or investor, this all makes sense. An economic report was published, then the headlines came out saying how bad it was, and in return, the markets dropped in a big way. However, to a more critical eye, and in this case the way I see markets, anyone selling because of the Conference Board’s Consumer Confidence Index has absolutely no idea what they are doing.

I say this because it is fascinating to me how people will quote these reports with complete conviction, without ever looking into how they’re actually put together. So let’s break it down.

The Process Behind the Conference Board’s Consumer Confidence Index

1. A survey link gets blasted out to what they believe are 5,000 people across the U.S.
   • No one really knows who gets it. Could be a diverse sample. Could also be five people in the same apartment complex.
2. About 3,000 of them actually respond.
   • The other 2,000? Who knows. Maybe they ignored it, maybe it went to spam, maybe they were too busy doing something else, like living their lives.
3. These 3,000 responses get compiled into a single index number.
   • That number then becomes a market-moving event. Because obviously, 3,000 people filling out an online form are the voice of 330 million Americans.
4. A dramatic headline gets published.
   • Something like “Consumers Are Terrified—Confidence Plummets!” or “Households Have Never Been More Optimistic!” depending on how the answers happened to shake out.

And just like that, a handful of survey responses can suddenly become the reason the market is up or down for the day, and more importantly, a survey of about 3,000 responses in a country of 330 million can move trillions in markets.

This isn’t to say sentiment doesn’t matter. Just that more people need be aware of the methodology and not letting a small, random, rather opaque process drive their understanding of the world.