Everybody walks around with a mental spreadsheet of what they think the market should care about.
Wars. Elections. Interest rates. Earnings. Government debt. Oil prices. Inflation. The Fed. Valuations. Headlines. Scandals. CEOs saying dumb things on conference calls.
Whatever it is, everybody has their own idea of how heavily those things should impact stock prices.
The funniest part? Most investors think their mental model is the right one.
They think the market is “wrong” when it doesn’t react the way they expected.
But the market doesn’t care how you think information should be weighted.
The market decides that.
Not you.
The Market Has Its Own Agenda
Maybe you think a war should matter a lot.
Maybe you believe geopolitical conflict should account for 30% of the market’s decision-making process.
Meanwhile, the market shrugs and treats it like a 5% issue.
Or maybe it’s the opposite. Maybe you think earnings don’t matter much because everybody already knows the numbers are manipulated anyway.
Then the stock gaps 20% overnight because the market suddenly decided earnings mattered a whole lot more than you thought.
The key is understanding that these weightings are constantly changing.
They’re never static.
There are environments where investors obsess over inflation. Then suddenly inflation disappears from everybody’s radar and all anyone cares about is liquidity. Sometimes rates dominate everything.
Sometimes rates don’t matter at all. Sometimes valuations are all people talk about.
Other times stocks with absurd valuations keep going higher for years while the “cheap” stocks stay cheap forever.
You don’t get to choose which variables the market prioritizes.
The collective market does. That’s millions of participants around the world.
Different objectives. Different time horizons. Different mandates. Different emotions. Different incentives. Different information. Different levels of risk tolerance.
And somehow all of that chaos gets distilled down into one simple thing:
Price.
That’s the scoreboard.
The Information Isn’t Wrong. Your Assumptions Probably Are.
This is where investors get themselves into trouble.
They gather information that is factually correct and then assume the market must react the way they personally would react.
That’s a dangerous game.
You can be completely right about the fundamentals and still lose money because you misunderstood how heavily the market was weighing those fundamentals relative to everything else happening underneath the surface.
Maybe you’re focused on government debt. Maybe you think deficits are catastrophic and stocks should collapse immediately because of it.
But if every market participant on earth already knows that information and has already acted on it, then who’s left?
The price already reflects those concerns.
That’s literally what price is.
A live auction between buyers and sellers processing all available information in real time.
This is why sentiment matters so much more than most investors realize.
If everybody already agrees with you, your edge is probably gone.
If everybody already knows the story, the stock has likely already adjusted for the story.
At some point there are simply no buyers left because everybody who wanted in is already in.
And when that happens, stocks go down not because the information was wrong, but because the information was already fully weighted into the price.
Most investors dramatically underweight this dynamic.
They also underweight trends.
We know for a fact that asset prices trend over time. Stocks trend. Commodities trend. Interest rates trend. Currencies trend. Human behavior trends.
Yet investors constantly fight those trends because they think the market should care more about something else.
That’s ego talking.
The Market Has No Morality
The market is not a morality machine.
It’s not sitting around trying to decide what deserves to go up or down based on ethics or politics or fairness.
The market is simply processing supply and demand.
That’s it.
You might personally hate tobacco companies. You might hate defense contractors. You might think gambling stocks or alcohol stocks or adult entertainment companies shouldn’t rally because morally you disagree with them.
The market doesn’t care.
The market isn’t rewarding virtue. It’s measuring demand.
And sometimes the things people hate the most become the best-performing assets because the supply-demand dynamics shifted underneath the surface.
Again, you don’t get to pick the weighting.
The market does.
That’s why I always come back to price.
Because price is the final vote after every opinion, every narrative, every political argument, every earnings model, every economic forecast, every emotional reaction, and every hot take on the internet has already battled it out.
Price is the collective wisdom of the marketplace.
And price is the only thing that pays you.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs