JK5, I think this excerpt from Prechter might help explain why news is often not the driving force for markets, but the other way around. It doesn't directly answer why cycles work so well so often (not always) but it that could be tied to the socioeconomic theory that Prechter touches on in his explanations below.
[We do not believe that social events, as reflected in the news headlines, reinforce social mood. If there were a feedback loop between the two, social trends would extend indefinitely. Think about it. Let's take positive social mood, for example, as in a bull market. Positive social mood creates positive social events; no argument there. Positive events are then reflected in positive news headlines. If positive news reinforced the original mood, then the reinforced mood would produce additional positive news headlines. They would further reinforce positive mood, causing it to sprawl an even higher number of positive social events and news. And so it would go. If this were true, positive (or negative) trends in social mood and news would never end.
But they do. Which can only mean that social mood changes on its own, regardless of outside influences. Here's how Bob Prechter puts it: "Chaos theorists typically presume a mutual causation between social actions and social mood, whereby actions affect mood, mood affect actions, and so on, ad infinitum. However, this does not appear to be the case. Studies have shown that even the most dramatic social actions and events have no effect on the tenor or character of social mood, thus challenging the idea of a 'feedback loop' between social mood and social action. I have concluded from these studies that social mood induces social action, period. The fact that manifestations of social mood fluctuate according to a patterned fractal called the Wave Principle is compatible with this conclusion." (Elliott Wave Theorist, April, September 2004. Subscribers can request a copy from our Customer Service.)
Bob Prechter's Socionomic theory has many elements in common with Soros’ theory of history. His key concept of the crucial role of “reflexivity” between thinking and reality is similar to socionomic theory’s concept of the reciprocal relationship between individual perceptions/choices and the social dynamics of society at the aggregate level. “Reflexivity” - as we see it - is between the individual and the aggregate levels, not between news headlines and social mood. No exogenous forces mechanistically affect social mood.
The main hypothesis of Socionomics is that social mood, which is endogenous and self-regulating, determines the tenor and character of social actions. That's why - as we've proven on multiple occasions - news (financial, economic, political or cultural) does not cause the stock market to go up and down. Such news, even if one could know it in advance, is no help in predicting stock market movement. The idea that social events — whether unidirectionally or as part of a feedback loop — are a primary cause of social mood change has proven useless for predicting changes in its supposed result.
The difference between the socionomic and the standard view is fundamental. Here is an example: Economists typically argue that a strengthening economy causes consumers and business people to become optimistic. A socionomist understands that a change toward a more positive social mood means that consumers and business people — both part of the larger herd — are becoming more positive about their prospects, thereby inducing them on the one hand to buy more products and services and on the other to hire more people and expand output, all of which serves to cause a strengthening economy in the first place. Indeed, how could it be otherwise? An improvement in the economy must arise from more optimistic decisions made by consumers and businessmen. Social action is the eventual result of social mood change, not the cause of social mood change. (Bob Prechter is Elliott Wave International's CEO and founder. He is the editor of the monthly Elliott Wave Theorist, part of the Financial Forecast Service. An excellent read on the subject of social mood is The Wave Principle of Human Social Behavior.)]
(20min delay)