Markets trade the future
Why good news can make a market fall: prices trade expectations, often 6 to 9 months ahead, and only the surprise in a number moves them.
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In this video
- Large players price what they expect, often months before the economy confirms it.
- A release moves the market by its surprise. A result outside the range of forecasts is a real surprise.
- Data that touches the main narrative can move prices for days. Data that does not usually fades within hours.
- Ask 3 questions: what was expected, how big is the surprise, and does it support or break the story?
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Key terms
- Priced in
- When the market already expects something, so it barely moves when it happens. Only the surprise moves price.
- Consensus (forecast)
- The average forecast of economists for a data release. The market reacts to the gap between the actual number and the consensus.
- Forecast
- The expected value of a data release, usually the consensus of economists. Compared with the actual number to measure the surprise.
- Narrative
- The story the market currently trades, for example “the Fed will cut soon”. Data that fits the story moves price more.