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Opinion
Nir Kaissar

How Much Bad News Is Priced Into Stocks?

The answer often depends on where you look, and there’s a divergence now across growth and value and US and foreign equities.

Low price-earnings and other ratios are usually a good indication that markets have digested bad news and are near bottom.

Low price-earnings and other ratios are usually a good indication that markets have digested bad news and are near bottom.

Photographer: Michael Nagle/Bloomberg

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When there’s a lot of bad news, as there is now about US bank failures, investors often wonder how much of it is reflected in stock prices. It’s tempting to say not much, judging by the fact that headline US market gauges like the S&P 500 Index are roughly flat since reports of bank collapses surfaced two weeks ago.

But it’s never entirely obvious why stock markets move the way they do in the short term. Maybe the market isn’t bothered that a handful of regional banks are going bust. Or maybe it is, and those concerns are counterbalanced by optimism around other problems, such as inflation or post-pandemic hiccups. Who knows?