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What’s Baked Into the Market? And What Does That Even Mean?

“Baked in,” “priced in,” and “discounted” are just market lingo for “you can’t make money from this.”

Pundits who wouldn’t know baking soda from baking powder love to talk about what’s “baked in” to the market. Is a Biden victory baked in? Is a second wave of Covid-19 cases baked in? In the past week alone, Bloomberg News and Bloomberg Intelligence used “baked in” in stories about a Rhode Island construction company’s 401(k) plan, the Reserve Bank of India’s monetary policy, and the earnings forecasts of United Internet AG.

“Baked in” is just traders’ lingo for “expected.” If the stock market collectively expects former Vice President Joe Biden to win the election, then prices of stocks have already adjusted to reflect that expectation. You, the clueless latecomer, can’t make any money by betting on a Biden victory because others have beaten you to it. Markets are, in a word, efficient. In baking terms, the hypothetical Biden victory isn’t a new ingredient. It’s already in there with the eggs and flour and baking powder (or is that baking soda?).