Why Prices Move Before The News Arrives

Markets frequently move ahead of the events they are supposedly reacting to, and then fail to move when those events occur. The reason is that prices reflect expectations.

A price is a forward-looking figure

The value of a share depends on what a company is expected to earn in future, not on what it has already earned. The past matters only as evidence about what comes next.

This means every price already contains a forecast. Buyers and sellers are transacting on their views of the future, not on a record of the past.

When those views change, the price changes immediately, regardless of whether the anticipated event has taken place.

Anticipated events are priced in advance

If a policy decision or a result is widely expected, participants position for it before it happens. The adjustment occurs while the expectation forms.

By the time the event occurs, much of the movement has already taken place, so the announcement itself produces little reaction.

This is the origin of the observation that markets buy the rumour and sell the fact, which describes a timing effect rather than any perversity.

Surprise is what generates movement

The reaction to an event depends on the gap between the outcome and what was expected, not on whether the outcome was good or bad in absolute terms.

A weak result can be followed by a rise if the market had prepared for something worse, and a strong one by a fall if more had been anticipated.

Interpreting reactions therefore requires knowing what was expected beforehand, which is the piece usually missing from after-the-fact commentary.

Probability adjusts continuously

For events with uncertain outcomes, prices reflect a weighted view across the possibilities rather than committing to one.

As information accumulates, that weighting shifts, and the price moves gradually rather than waiting for resolution.

When the outcome is finally known, the remaining adjustment covers only the distance between the prior probability and certainty.

The practical consequence for investors

Acting on publicly known information means acting after prices have already adjusted to it, since the same information reached everyone else simultaneously.

This is why widely discussed developments rarely present the opportunity they appear to, and why coverage volume is a poor guide to what is priced.

It also explains why forecasting an event correctly does not guarantee a profitable outcome, since the result depends on how the forecast compared with what was already expected.