Your Wealth Journey Investment Insights: Why Financial Market Prices Change & Why You Should Care

If you’ve ever been to Seattle, you probably visited Pike’s Place Market. Maybe you even participated in throwing some fish around. You may have noticed that the prices for the fish are hand written. That’s not just because it’s always been done that way. It’s because the price of the fish changes.

The same is true for financial markets. But why do they change? Answering this question will help you stay on course and use the market as a booster to your progress instead of an obstacle.

News: The Shortcut That Isn’t
So, what causes market prices to change? It begins with the 24-hour news cycle informing us of of virtually everything that happens. For example, when there are reports that a fungicide is attacking Kansas wheat, bread futures may soar, as the market predicts that there’s going to be less supply than demand.

But what does this mean? Should you jump off your path and try take advantage of this unforeseen shortcut? Before the news tempts you into the woods, it’s critical to be aware of the evidence that tells us the most important thing of all: Do not expect breaking news to significantly improve your journey.

Great Expectations
The way in which the market adjusts prices will often prevent you from making meaningful reactions to breaking news. There are two principles to bear in mind here.

First, it’s not the news itself; it’s whether we saw it coming. Unexpected news is what alters future pricing. By definition, the unexpected is impossible to predict, as is how the market will respond to it. Group intelligence gets in the way of those who might still believe that they can find shortcuts by consistently forecasting future prices.

Second, by the time you hear the news, the market already has incorporated it into existing prices, well ahead of your ability to do anything about it. This is especially true in today’s micro-second electronic trading world. In his article, “The impact of news events on market prices,” CBS MoneyWatch columnist Larry Swedroe explored how fast global markets respond to breaking news. Pointing to evidence from a number of studies among several developed markets, the universal response was nearly instantaneous price-setting during the first handful of post-announcement trades. In the U.S. markets, it was even faster than that.

This makes reacting to breaking news an incredibly high-speed race. You’re competing against automated traders that react in fractions of a second. If you think you’ve found a shortcut in breaking news, chances are high that you’re already way behind. You’re setting yourself up to buy higher or sell lower than those who already have set new prices based on the news.

Your Journey
At Atlas, we’ve taken care to pinpoint your location on the financial path and map a journey that is right for you. The news is a distraction, a mirage that will pull you away from your path.

Rather than trying to run a race based on ever-changing information against advanced competition, we believe you should follow your personal path, adjusting where necessary, steering clear of all the noise that news chasing presents.

Need help finding your path?

Read More from Atlas Wealth Advisors

• The Introduction to this Series: Becoming a Better Investor
• Start Your Retirement Journey Series
• Find Your Financial Focus
• Using Group Intelligence for Buying Low and Selling High