Free Trading School · Level 10: Fundamentals and the News
What really moves markets
Over the long run, prices follow fundamentals: company profits for stocks, interest rates and economic strength for currencies, supply and demand for commodities. In the short run, prices move on how reality compares with expectations.
A company reports 20% profit growth, but analysts expected 30%. The stock falls 8%. The news was good; it was simply less good than what was already priced in.
- Expectations are already in the price before the news is released.
- The surprise (actual minus forecast) is what moves the market.
- The market reacts to the future, not the past: guidance and forecasts often matter more than last quarter's numbers.
Ask "better or worse than expected?", not "good or bad?".
Quick answers
Over the long run, prices follow fundamentals: company profits for stocks, interest rates and economic strength for currencies, supply and demand for commodities. In the short run, prices move on how reality compares with expectations.
Ask "better or worse than expected?", not "good or bad?".
Falls because it missed expectations. Markets move on the surprise versus expectations.
Next lesson: Central banks and interest rates