Who are the primary people that cause the stock market to tumble?

[EricP]

So, I guess the stock market is currently down a little bit.  I know this, not because I check the news but because there was a front page post on /r/PF about how we should stay the course even though the stock market has gone down 5%. Standard stuff, nothing new here.

So my question is, who are the primary types of people pulling their money out of the stock market that causes it to go down? Hedge Fund Managers?  Scared Pensioners?  Actively managed funds trying to beat the market?  And, additionally why are they doing it?  Where is this money going where they think they can beat the market?

[beltim]

It's difficult to say who's doing most of the selling.  But the overwhelming majority of stock market trades are from high-frequency trading. 

[sol]

Momentum traders will amplify the trend once it crosses their charting signals.  Once it starts to fall, they effectively short it because they think it will continue to fall, which makes it fall.

As for the alternatives, most people are performance chasers. Right now, that means they're moving to foreign developed, aka non-US non-emerging markets like Germany and Japan. 

[neil]

HFT has a goal of taking money out of the market through spreads, but I would think most don't plan on carrying positions overnight.  I am pretty sure they aren't doing much else besides pushing money around.  I do think they actually might end up muting the effects somewhat by creating extra artificial supply and demand.

Bonds are a larger percentage of investment than stocks.  It is pretty obvious where the money is going when one is up and the other is down.  Since the goal of hedge funds is to provide stable return with low drawdown, it is not hard to imagine people working for them are making new decisions daily.  I also think individual investors are becoming bigger pieces of the overall traffic over time and who knows what the heck they are doing.

Still, I don't really look at these levels as being "down".  We are 2.5% off all time highs.  There was a time not too recently where that was a regular daily occurrence.  News articles actually make me wonder who is buying when every "metric" seems to claim we are beyond overvalued.  I guess the big money has other metrics...

[brooklynguy]

Where is this money going where they think they can beat the market?

In phrasing the question this way, you seem to be ascribing a passive buy-and-hold mentality to active traders who are trying to time the market.  They're not taking money out of the stock market to put it somewhere else thought to be capable of beating the market in the long-term; they're trying to beat the market in the long-term by the very act of moving money in and out of it in the short-term.

[EricP]

Still, I don't really look at these levels as being "down".  We are 2.5% off all time highs.  There was a time not too recently where that was a regular daily occurrence.  News articles actually make me wonder who is buying when every "metric" seems to claim we are beyond overvalued.  I guess the big money has other metrics...

I wasn't specifically talking about this time that the market was a little down in general, just in general when the market takes a dip where are the people putting the money.

Back to the main question, it seems that everyone has provided a different answer.

@Brooklynguy, But I can't see how there would be that many market timers that would drive the market down for the big drops.

Maybe my understanding here is wrong, but if the market drops by 40%, that would imply that (at least) 40% of the market was held by market timers.  Is it really that high or is my understanding messed up here?

[beltim]

Back to the main question, it seems that everyone has provided a different answer.

@Brooklynguy, But I can't see how there would be that many market timers that would drive the market down for the big drops.

Maybe my understanding here is wrong, but if the market drops by 40%, that would imply that (at least) 40% of the market was held by market timers.  Is it really that high or is my understanding messed up here?

First, there is probably more than one answer.

Second, your understanding is off.  The fall in value is not related to the percentage of stock held by those who sold it.

[forummm]

Maybe my understanding here is wrong, but if the market drops by 40%, that would imply that (at least) 40% of the market was held by market timers.  Is it really that high or is my understanding messed up here?

Imagine the market has only one company and there are only 100 shares of stock, each owned by a different person. The most recent price is $100 per share. One person wants to sell. He really needs money. He offers $100. No takers. He offers $99. No takers. Etc. Eventually he offers $60 and someone agrees and buys it. Now "the market is down 40%". But only 1 person sold. Not the way things usually happen. But you get the idea.

[hodedofome]

I'd say markets and stocks typically go down because of a lack of buyers, not from short sellers. Shorts are such a small part of most markets that I can't see them being very influential on prices on the downside.