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Introduction: After the fact, it is always possible to “explain” why the stock market performed as it did. The following clip provides some examples, but touches on some fundamental economic concepts as well.

GRAPHICS: DOW JONES

07:07:28 CHARLES GIBSON

(VO) Up and down all week from Monday to Thursday when the stock market leaped 206 points. That was the biggest one day point gain in more than two years that occurred yesterday.

07:07:37 CHARLES GIBSON

(OC) So, joining us now to discuss what this means, "Good Morning America" Financial Contributor Mellody Hobson. Also president of Ariel Capital Management. And it's nice to see you ...

07:07:45 MELLODY HOBSON, ABC NEWS

(OC) Good to see you.

07:07:46 CHARLES GIBSON

(OC) ... in person here rather than from Chicago. So tell me what happened yesterday.

GRAPHICS: YOUR MONEY

GRAPHICS: WILD RIDE ON WALL STREET

07:07:50 MELLODY HOBSON

(OC) Well, basically, we have something called earnings season that's going on right now. That's when companies report how they've done for the quarter. Yesterday, a number of companies reported much better than expected earnings. They were companies like Motorola, Nokia, UPS, Schering-Plough, and as a result of that, everyone got very, very excited.

07:08:10 MELLODY HOBSON

(VO) Additionally, we had some really good news in the manufacturing area. Specifically, we heard that productivity is up, maybe suggesting that manufacturers think there is going to be more demand.

GRAPHICS: DOW SURGED 206 POINTS

07:08:20 MELLODY HOBSON

(OC) And so maybe the economy isn't as bad as everyone thought. So that's what really pushed the stock market up yesterday.

GRAPHICS: BIGGEST BLUE CHIP RALLY IN 2 YEARS

07:08:26 CHARLES GIBSON

(OC) Well, that's your theory.

07:08:27 MELLODY HOBSON

(OC) That's my theory.

07:08:28 CHARLES GIBSON

(OC) My theory is that you were on the broadcast earlier in the week after those three terrible days on the market and you said, don't panic.

GRAPHICS: NOKIA, MOTOROLA POSTED STRONG REPORTS

07:08:34 CHARLES GIBSON

(OC) That actually the time to buy is when it's going down. So, that's what I figure happened. Everybody listened to you and then it, and –it went -back up.

GRAPHICS: ENERGY BILL PASSED TO BOOST OIL SUPPLY

07:08:41 MELLODY HOBSON

(OC) And I moved the market.

07:08:42 CHARLES GIBSON

(OC) You moved the market. But is this a one-day phenomenon or do you think, a feeling in effect, that the market had fallen too, too precipitously in previous days? Or do you think now we're in for something of an upward turn?

07:08:54 MELLODY HOBSON

(OC) You know what? I actually think this is probably more of a one day wonder. And the reason that I think that is we've had incredible volatility in this market. These swings are so wild that it suggests that, really, this market is not on sound footing right now.

GRAPHICS: MARKET STILL ON SHAKY GROUND

07:09:08 MELLODY HOBSON

(OC) Last week, we're in free fall, yesterday, we had one of the biggest gains ever, and you sit there and you look at that and you say this market is really trading based upon emotion not based upon fundamentals. That worries me a little bit.

07:09:19 CHARLES GIBSON

(OC) So, these swings each day are really, it swings more than the news would really indicate that it should.

07:09:26 MELLODY HOBSON

(OC) That's exactly right. We're not, again, seeing fundamental news, business news. Yesterday, we did see that with the earnings but, in general, it's just a lot of piling on. Either people get overly excited or they get overly pessimistic. When companies disappoint, they're getting crushed and it just gives a sense there's just a lot of angst and anxiety right now.

GRAPHICS: DON'T CHASE STOCK HEADLINES

07:09:45 CHARLES GIBSON

(OC) I heard Warren Buffett, who's a pretty shrewd investor, say once ...

07:09:47 MELLODY HOBSON

(OC) Very smart.

07:09:48 CHARLES GIBSON

(OC) ... don't check your stocks everyday. You don't, you don't have your house appraised everyday, you buy your house for long-term growth.

You should do the same with stocks.

GRAPHICS: ALWAYS INVEST FOR LONG TERM

07:09:57 MELLODY HOBSON

(OC) Well they, that is exactly right. You should not make your investment decisions based upon these one day swings or the headlines that you're reading everyday. You want to take a step back and think about the long term. Additionally, you don't want to sit there trying to figure out what's going to happen with the stock market tomorrow, or next week, or next month. If you could, it's easier to think about what's going to happen with individual companies or with mutual funds. That's just a much easier thing to do. It's also more comforting because you can have a very bad stock market but you can still have individual companies or mutual funds that do quite well. And obviously, that argues for diversification, which I talk a lot about.

07:10:35 CHARLES GIBSON

(OC) You do, indeed. Come back soon. Mellody Hobson, thanks very much.

Robin?

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