Market Movers: How Major Events Impact Your Investments

The stock market can be unpredictable on a day-to-day basis, with major fluctuations up and down. However, certain impactful events known as “market movers” routinely cause significant reactions across financial markets.

This guide will educate you on the categories of announcements that tend to move markets, provide major examples, and offer advice on how investors can adjust their strategies during particularly volatile periods.

What Exactly are Market Movers?

Market movers refer to a major event, announcement, or news report that substantially influences the financial markets. Market movers tend to cause notable spikes or dips in asset prices, market indexes, and currency exchange rates in the hours and days following their release or occurrence.

Some of the most common market-moving events include monthly US jobs reports, Federal Reserve interest rate decisions, earnings results from dominant public companies, and geopolitical events like elections or new trade policies. Commodity markets also regularly react to global developments that impact supply and demand.

What Moves Financial Markets Up or Down?

Generally speaking, financial markets move based on the overall economic outlook, the expected pace of growth, inflation expectations, interest rate policy, corporate profits, investor sentiment, and global political developments.

Some of the recurring reports and events that influence these market-moving factors include:

Economic data releases: Critical metrics like GDP, jobs reports, consumer spending, manufacturing activity, and inflation gauges significantly impact financial projections and future earnings assumptions. Markets can swing sharply if the data comes in well above or below consensus estimates.

Central Bank monetary policy: Federal Reserve interest rate decisions directly influence borrowing costs in the economy. Lower rates stimulate lending and business investment, while hikes cool down those activities to prevent overheating. Other central banks also impact currency exchange rates globally.

Geopolitics: Major political events like elections, new legislation, global conflicts, or trade policy shifts create uncertainty about future business conditions, which markets dislike. Updates around hot-button issues like taxes, regulations, and tariffs tend to elicit sharp reactions.

Corporate earnings: Stock prices fluctuate substantially based on companies’ quarterly business results. Strong profits typically lift shares broadly, while high-profile misses or weak outlooks can spark sector-wide or market-wide pullbacks.

Commodity prices: Energy, metals, agricultural goods, and other globally traded commodities often spike or plunge on supply and demand shifts. Their pricing dynamics flow down to companies in related industries.

Major Market-Moving Events and Announcements

Federal Reserve Interest Rate Decisions

The US Federal Reserve’s monetary policy decisions are closely watched market movers that almost always create volatility in multiple asset classes. The Fed sets the benchmark federal funds rate that governs short-term lending costs economy-wide. Rate hike cycles aim to prevent overheating inflation, while cuts are deployed to stimulate growth during downturns. The path of rates serves as a critical variable in valuation models.

Since late 2015, investors have fixated on the Fed’s ongoing path toward policy “normalization.” After keeping rates near zero for seven straight years, the gradual hike cycle sparked corrections in normally low-volatility assets like bonds and gold when accelerated timetables were projected.

June’s 75 basis point increase – the largest single hike since 1994 – exemplifies the Fed’s influence. Both stock and bond prices immediately sank on worries about slowing growth and higher long-term rates. Another oversized increase in July kept markets on edge.

Big Tech Earnings Reports

Earnings from dominant technology and other mega-cap companies make up some of the highest-profile quarterly market movers. Stocks like Apple, Microsoft, Amazon, Meta Platforms (Facebook), Alphabet (Google), Tesla, NVIDIA, and major chipmakers can single-handedly sway US indexes based on their reactions.

Given their massive market capitalizations and growth/momentum status amongst investors, minor forecast changes or perceived weakness in reported figures translates into heavy selling pressure.

For example, Meta’s disastrous Q1 2022 report crushed its stock by 25% the next day, dragging the Nasdaq into correction territory in weeks. Meanwhile, robust tech demand lifted markets after strong reports from Apple and others during various pandemic quarters.

Opec Oil Production Policy

As a cartel controlling over 30% of global petroleum output, the Organization of Petroleum Exporting Countries (OPEC) holds tremendous sway over energy prices based on coordinated supply adjustments. The oil futures curve and related equities can make massive moves on the group’s meeting statements revealing production quota changes.

Generally, announced cuts spark an oil rally along with the shares of drilling and services companies. Meanwhile, bigger-than-expected output boosts pressure prices lower. During crucial periods, the oil market hung on every word around negotiations between OPEC and allied non-member states like Russia.

The most extreme example came in April 2020, as the cartel initially failed to reach an agreement with its partners, resulting in threats of oversupply as additions hit the market just as the coronavirus crushed energy demand. West Texas Intermediate crude prices memorably plunged below into negative territory as futures sellers desperately sought to unload contracts. A deal shortly followed to rescue prices.

How Announcements and Events Influence Asset Prices

Stocks: Individual sectors can diverge widely based on whether the news appears positive or negative for their business outlooks. Cyclical groups like energy, financials, industrials, and materials benefit from stronger economic growth and inflation. Rate-sensitive tech and utilities stocks often decline.

Bonds: Interest rates almost always rise on data revealing accelerated inflation or a higher probability of aggressive Fed tightening. Yields and prices share an inverse relationship, so bonds fall as rates increase. Extreme uncertainty can sometimes lift bonds due to “flight to safety” demand.

Commodities: Industrial metals like copper rally on robust manufacturing or construction activity. Gold fluctuates with the dollar and actual interest rates as an inflation hedge. Oil jumps if an OPEC cut signals future supply tightness.

4 Strategies for Investors to Counteract Market Movers

The most fundamentally sound strategy remains diversification across uncorrelated assets and patience over the long term. However, several shorter-term tactics around market movers can generate gains or mute volatility spikes:

1. Follow market-moving events calendars – Planned announcements allow investors to position ahead based on consensus forecasts. Some traders take contrarian views by fading the initial reactions.
2. Hedge around binary events – Protective options strategies can buffer impact from an undesirable binary outcome like a deal failure.
3. Use events to rebalance – Revisit asset allocation after sharp swings to buy depreciated categories. Trimming appreciated assets prevents overconcentration, too.
4. Limit leverage in times of uncertainty – Avoid excessive margin lending or risky derivatives positions when near-term direction seems highly unpredictable.

You might also like to read: How to cut losses in trading

Conclusion

Major economic data releases, central bank decisions, corporate earnings, geopolitics, and commodity price fluctuations can all spark outsized market reactions in the short run. However, long-term fundamentals ultimately dictate lasting trends.

Understanding the recurring schedule of potential announcements, establishing reasonable positions ahead of binary events, rebalancing during volatility spikes, and focusing on diversification, investors can aim to generate gains or reduce portfolio swings around the market’s reaction to impactful news.

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