As much as I both like and dislike Ben Stein, this is a fairly good analysis of what factors will move the stock market: How Speculators Exploit Market Fears.

The point is basically that a small number of people create a false impression of the market which then causes people to emotionally overreact to the news. The major fund owners do this because they need volatility to make money.

You can see some analysis of the overreaction here: Stock Price Recovery After a Drop. This seems to show there’s a significant overreaction because the market corrects and regains most of the lost value within several days of a large price drop.

To me these actions by the fund owners seem borderline illegal, but proving their intent would be near impossible. It’s not incorrect to speculate that the stock market will drop as house foreclosures increase throughout the US. Ben’s point is that the market movers imply this will be a significant drop to scare people into selling but the real impact of housing should be minimal.

On the end of the “illegal spectrum,” a few months ago market commenter (and former hedge fund manager) Jim Cramer admitted that fund managers will call news organizations and plant completely fake stories to help them make a profit. See some discussion of that here: Cramer and Personal Responsibility.