It’s Not The Fact, It’s The Reaction
Not advice, dyor.
This is the overnight headline that will grab the financial markets’ attention. Markets are cheering, for now. As usual, it is not the fact that actually matters. It is the reaction, and why? It’s because the markets already reflect a probability-adjusted price, and one of those possible outcomes is a Russian retreat without conflict. HOW MUCH probability has been assigned to that outcome, yesterday, is unknown.
source of image (cnn.com)
If someone is wildly wrong, or has changed their mind dramatically, then knee-jerk reactions are entirely expected. That explains the first movement. However, from that point, it’ll get tougher, once those that were wildly wrong (or wildly right) have adjusted for new, moving possible scenarios.
When the scenarios vary widely, or people’s set of “probable scenarios” adjust to a great degree, you get more volatility in financial markets. It isn’t only the Ukraine situation, by the way, we have “Stocks For Show, Bonds For Dough” that remains.