News creates movement. Narratives create momentum.
Investors who separate information from interpretation are better positioned to avoid emotional reactions—and to act when markets overreact.
Why prices move more on interpretation than information.
Markets don’t react to news itself—they react to expectations versus reality. The same headline can send a stock up or down depending on positioning, sentiment, and the story investors are already telling themselves.
Expectations Matter More Than Headlines
Prices reflect what investors already believe.
Real-world example:
A company reports strong earnings, but the stock falls because growth slowed slightly compared to expectations. The results were good, just not good enough relative to what was priced in.
Narratives Drive Short-Term Behavior
Narratives simplify complex realities.
Real-world example:
During periods of rising interest rates, markets may label all technology stocks as “rate sensitive,” causing broad selloffs even among profitable, cash-rich companies. The narrative overrides nuance in the short term.
Good News Can Be Bad News
Context determines impact.
Real-world example:
Positive economic data can hurt markets if it suggests inflation will persist and interest rates may rise further. The data itself isn’t negative—the implications are.
Bad News Can Be a Turning Point
Markets often move ahead of reality.
Real-world example:
Stocks rally during recessions when conditions are still poor because investors anticipate future improvement before it appears in economic data.
Speed Amplifies Reactions
Modern markets reprice instantly.
Real-world example:
Algorithmic trading reacts to keywords within seconds of a news release, causing sharp initial moves that may later reverse once human judgment returns.
How Professionals Handle News
They ask three questions:
Was this already expected?
Does it change long-term cash flows?
Does it change risk materially?
If the answer is no, they often do nothing.