Is it bad to hate the news

Routes to finance

Clarity is king. There is one thing the stock market hates more than bad news and that is uncertainty. While negative results or data can derail investments, a persistent lack of clarity can absolutely freeze stocks.

Therefore, it can happen that some uncertainty is removed, and even if the underlying event is a negative one, the stocks involved will go higher. The act of clarifying, whether positive or negative, has a very positive effect on the stock.

Everyone wants to know what they're dealing with, and investors are no exception! In fact, stock market traders typically prefer the "devil they know" over the "devil they don't have".

In other words, the fear of the unknown in the stock market is almost always more catastrophic than the actual reality of the event. Any time most people are unsure of the impact of an event, it is treated as a worst-case scenario.

For example, if there is a debate about which candidate will win the presidency, you will be faced with quite a significant amount of uncertainty. If Candidate A wins, it will have a whole range of outcomes that are different than if Candidate B is victorious. This does not mean that one is better than another, but it does suggest that many parts of the economy, not just stock market investments, will be partially suspended until the outcome is confirmed.

A Presidential outcome is a pretty significant example and it would have a big impact. There are, of course, many other levels of uncertainty, each with its own recovery rally when the smoke clears.

We have seen situations like this many times over the years, and many of them seem to have built up recently.

The Federal Reserve could raise interest rates, the Greek economy could fail to reach an agreement with the International Monetary Fund, China could further devalue its currency, the eurozone economy could collapse ...

The most serious types of uncertainty involve significant problems that are beyond our control. Uncertainty is bad, but control over an unsafe event is much worse.

Let us consider Russia's invasion of Crimea or China's stance in the South China Sea as a few examples. The ultimate result is way beyond our clarity and vision, and unfortunately there isn't really much we can do about it. We're going to have to live with the uncertainty ... an outcome that almost ensures that the situation will deter certain parts of the economy and inventory levels.

In general, every time you hear words or phrases that contain terms such as "maybe," "possibly," "could", or "likely", it is with uncertainty. The longer this lack of clarity, the more damaging they are Impact on any underlying stocks that it affects.

There is a bright spot, however. An opportunity, actually. By predicting which shadows of uncertainty will resolve, you may be able to identify some investments that will benefit from the "relief rally" that follows.