Markets don’t react to news the way people expect. Headlines feel important, urgent, and definitive — yet prices often move in ways that seem disconnected from the story. Good news leads to sell-offs. Bad news sparks rallies. The confusion comes from assuming markets respond to facts. They don’t.
They respond to narratives and expectations.
News is just raw information. Narratives are the meaning investors attach to that information. A single data point can support multiple stories depending on context, positioning, and sentiment.
An interest rate hike can be framed as inflation control or growth suppression. An earnings miss can be seen as a warning or as the bottom. Price moves reflect which story the market chooses to believe — and whether that story is already priced in.
Expectations do most of the work.
By the time news hits the screen, markets have often been anticipating it for weeks or months. When reality matches expectations, prices barely move. When it surprises — in either direction — prices react sharply.
This is why “sell the news” happens so often. The narrative was already fully embraced before the headline arrived.
Narratives spread because they’re simple.
Markets are complex, but humans prefer clean explanations. Stories reduce uncertainty, even when they oversimplify reality. Once a narrative takes hold, data that supports it gets amplified. Data that contradicts it gets ignored — until it can’t be.
Narratives don’t break gradually. They snap.
Intermediate investors learn to separate information from reaction.
They watch how price responds to news, not the news itself. If bad headlines fail to push prices lower, it often means selling pressure is exhausted. If good news can’t lift prices, expectations may already be too high.
The market’s reaction tells you more than the story does.
This doesn’t mean fundamentals don’t matter. They shape long-term outcomes. But in the short to medium term, narrative dominance can override fundamentals — sometimes violently.
Fighting a strong narrative is costly. Blindly trusting one is worse.
The skill isn’t predicting headlines. It’s recognizing when a narrative is stretched, crowded, or losing its grip. That’s where risk shifts — often before the story changes.
Markets don’t move on what happened. They move on what people thought would happen — and whether they were wrong.
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