The Market Knows What You Don’t

A friend asked us a timely question: “Why did we remove our hedge position so quickly after the ceasefire, especially with little evidence it will hold?” The simple answer is the market knows more than all of us. Market prices are based on all available information.

Some of the information is widely known, while some is known only to a few investors. Regardless of what we know, think, or believe, the market knows more. The market is not always right, but given that it collectively knows more than any one of us, its price movements deserve our respect.

Think of the market as a massive, continuous poll of millions of participants, each putting real money behind their convictions. Unlike surveys, opinions, or commentaries, investing hard-earned capital has real consequences. When investors trade, they are voting with their wealth, making the market’s collective signal far more powerful than anyone’s analysis, no matter how well-reasoned.

This is why fighting the market is often a costly proposition. It requires not only being right at the right time, but right when the consensus is wrong. Regardless of your view, listen to the market. When prices move decisively in a direction, as they did on Wednesday, someone knows why, even if we do not.

Humility is an underrated investment discipline. The moment we believe our views outweigh the market’s, we have stopped managing risk and started taking it. The market does not care what we think. Investors need experience and hard lessons to appreciate the market’s voice, especially when it differs from their own opinions.

The Week Ahead and CPI

CPI came in slightly better than expected. Headline CPI rose by 0.9%, in line with the Wall Street consensus. Core CPI, excluding food and energy, only rose by 0.2%, slightly below expectations. The Fed will look past the high headline number as it’s temporarily skewed by higher energy prices.

Bear in mind that while surging energy prices push the headline number higher, weaker consumer sentiment will weigh on prices of other goods and services. At the same time, the tariff impact, which was inflationary, will now shift to a more disinflationary factor. Simply put, there are many unusual forces driving inflation that the Fed must consider.

The economic calendar is light this week, highlighted by the PPI report and the NFIB small business survey. Corporate earnings will kick into gear this week, with the banks leading off early, followed later in the week by a few larger companies like Taiwan Semiconductor (NYSE:TSM), Netflix (NASDAQ:NFLX), PepsiCo (NASDAQ:PEP), Abbott (NYSE:ABT), and Charles Schwab (NYSE:SCHW).

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