Gas prices are well above $4, ceasefire negotiations are on ice and airlines are warning that they’re running out of jet fuel. So, it sure seems odd that stocks are at record highs.
Blame CNN. No, really. Not for world events or the machinations of the markets, but for the perception that those two things are connected.
CNN (and the media as a whole) has forever linked current events with the performance of the stock market — it’s right there in a little “Dow” bug at the bottom of the screen during live news coverage.
That’s why we often view the stock market as a mirror. But the market isn’t a mirror; it’s a prediction engine.
Stock fluctuations are barometers for how a vast array of information — robust profit performance, a CEO gets sick, a competitor builds a better product, AI threatens an entire line of business — changes the perceived value of a particular company’s shares and its long-term earnings potential.
Once Wall Street believes the ramifications of a big news event have been appropriately priced into a stock, it moves onto the next thing – typically faster than Main Street has.
“It often feels like the stock market operates in an alternate universe,” said Kevin Ford, market strategist at Convera. “It’s less an alternate universe than an alternate timeline.”
We’ve seen this story
Markets have operated on an alternate timeline before.
- In March 2009, stocks began to rally, despite an ongoing deep recession that lasted several more months.
- Markets rebounded sharply just a month after the pandemic plunged the global economy into the deepest-ever recession that took years to recover from.
- After President Donald Trump imposed historic tariffs in August, the market kept rising.
But headlines still matter. The market is priced for perfection, the saying goes, and investors are pricing stocks for the expectation of how much profit they’ll deliver in the future.
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