Why Aren’t the Markets Going Even More Crazy?

I was recently talking with a friend about the conflict in the Middle East, and she asked, “Why aren’t the markets going even more crazy?” Specific circumstances aside, this is a question I’ve heard many times over my 50+ years in finance. I’ve given a version of the same answer over and over again, and I’ve come to believe it more each time the market has processed and moved through a new event.

I told my friend that markets are information-processing machines. As soon as any piece of news becomes public, millions of market participants consider that information, which affects the prices of stocks that might be impacted by that news. It affects the total market value too. What really matters during economic or geopolitical crises is that markets continue to function, meaning trades clear and buyers and sellers continue to come together. Markets think long term. So the price today isn’t only about how new information affects prices tomorrow, but over the course of the next few years.

The market is adjusting to new information faster than most people could. I see it as the market seeking to make order out of chaos.

When market prices drop, the market is trying to induce buyers to buy with the expectation of positive expected returns in exchange for their investment. Higher energy prices might increase the expenses of certain companies around the world, which could raise the cost of goods and lower profits. The market puts that information into a company’s stock price—in this case, one that’s going down—which reflects future expected returns.

Think back to the beginning of COVID-19. At the end of March 2020, the S&P 500 Index was down nearly 20% for the year.¹ Nobody knew exactly what the impact would be, but that 20% was the collective estimate at the time. By the end of the year, there was a vaccine in the pipeline and the market ended up 18.4% for the year, a 38% turnaround from its March lows. Going from −20% to +18% means the initial expectations were worse than what actually happened. So the market adjusted. That happens. The market doesn’t always get it right. Or right away. But it’s the best option I know of.

I never get tired of explaining how public markets work. When people have a better understanding of the way markets process information, they feel less stressed and have a better investing experience. They might even pick up some insights about the state of the world.

My friend said it’s already helped her through the last few news cycles. These days, that’s saying a lot.

Stay calm, stay invested, and let markets work for you.

David

Footnotes

1. In US dollars. Past performance is no guarantee of future results. S&P data copyright 2026 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Decrease of 19.6% was from January 1, 2020, to March 31, 2020. Increase of 38% was from March 31, 2020, to December 31, 2020.