priced into the market

  • kentix

    Senior Member
    English - U.S.
    It's not something someone does consciously. It's an indirect consequence of human behavior and judgement represented in the overall market and the law of supply and demand. When people, and especially institutions, buy stocks, part of the calculation that goes into the decision about what it is a good price to pay is the estimates for the future performance of the economy. If the economy does well, you can afford to pay more now because you'll make more later. If the economy doesn't do well, your stock might be worth less than you hoped. So people have to gauge from economic reports and estimates what will happen in the future. The people who do that for a living are generally very good at it. They can see the general direction of things. If they predict there will be inflation in the future, they will be less willing to buy now. And when demand goes down, prices go down. That's how the free market works.

    That's what they are saying in the quoted passage. The current market prices reflect the the decision-making of thousands of investors gauging the future direction of the economy and the estimated level of inflation. Those decisions have already affected the prices in line with future estimates. They go up and down every single day based on the latest news and estimates. If it's a general feeling there will be inflation, the prices of stocks now will already be lower than they would have been otherwise. But it wasn't one person's or one group's decision. It was the effect of the law of supply and demand doing what it does.
     

    Alexander2

    Senior Member
    Russian
    It's not something someone does consciously. It's an indirect consequence of human behavior and judgement represented in the overall market and the law of supply and demand. When people, and especially institutions, buy stocks, part of the calculation that goes into the decision about what it is a good price to pay is the estimates for the future performance of the economy. If the economy does well, you can afford to pay more now because you'll make more later. If the economy doesn't do well, your stock might be worth less than you hoped. So people have to gauge from economic reports and estimates what will happen in the future. The people who do that for a living are generally very good at it. They can see the general direction of things. If they predict there will be inflation in the future, they will be less willing to buy now. And when demand goes down, prices go down. That's how the free market works.

    That's what they are saying in the quoted passage. The current market prices reflect the the decision-making of thousands of investors gauging the future direction of the economy and the estimated level of inflation. Those decisions have already affected the prices in line with future estimates. They go up and down every single day based on the latest news and estimates. If it's a general feeling there will be inflation, the prices of stocks now will already be lower than they would have been otherwise. But it wasn't one person's or one group's decision. It was the effect of the law of supply and demand doing what it does.
    Thank you for the detailed explanation. Then would it be correct to interpret the statement in the following way?

    Original statement: "A lot of growth and inflation have already been priced into the market."

    Interpretation: “Market prices have already been affected by a lot of growth and inflation.”
     

    kentix

    Senior Member
    English - U.S.
    No, that's not accurate. The growth and/or inflation hasn't happened yet. It's predicted for the future. People are reacting to predictions, not facts.

    Interpretation: “Market prices have already been affected by expectations of future growth (or lack of future growth) and inflation.”

    The market and prices anticipate what will happen before it happens. The people who wait too long to react will be losers. They will buy after prices go up, not before, or sell after prices go down, not before.
     

    Alexander2

    Senior Member
    Russian
    Thank you. I can now interpret the statement as meaning "market prices have already been affected by expectations of a lot of growth and inflation.” The original statement is quoted in a translation test where English texts have to be translated into the Russian language for a translation agency.
     

    kentix

    Senior Member
    English - U.S.
    The giveaway word is "already". It means it has happened now, before the other things could have possibly happened. The prices have already changed, before it can be proven whether the predicted events actually do happen. If they don't happen, things will have to change again.

    Everything in the stock market is about making decisions now based on what might happen in the future. When those predictions are wrong many people lose money. Some people make money because they didn't believe the predictions in the first place and made different decisions in the past.
     
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