Analytics

Why Markets Don’t Always React to Big News: A Baking Analogy

“It was already baked into the market reaction.” It’s something we at Marketplace, and other business news journalists, say when big news happens and the markets don’t seem to care.

But why not?

“I would say that the analogy to baking, when we talk about ‘baked in’ is pretty appropriate,” said Sasha Indarte, a professor of finance at the University of Pennsylvania’s Wharton School.

It’s a bit on the nose, but stay with us. Once all the ingredients are mixed together and the cake is in the oven, what’s going to come out when the timer goes off is already decided. It’s baked in.

The market works kind of the same way. Once news — or more accurately, anticipated news — is incorporated by stock market traders and other economic decision-makers, the news isn’t really new when it happens.

“For example, when the [Federal Reserve] makes its announcement about monetary policy rates and the path of monetary policy going forward, we don’t always see a big market reaction,” said Indarte. “Sometimes mortgage rates or stock prices don’t move a whole lot.”

Take the analogy just a hair further: When markets don’t move a whole lot on what otherwise would be big news, it means Wall Street has a pretty good recipe for what the future market is going to look like.

“What are the ingredients here? That would be the data that would be things like job reports, the latest inflation numbers,” Indarte said.

Right now, traders are baking in the January jobs report, the latest consumer price index, the personal consumption expenditures price index, and tons of other data points they might use to, say, take a guess at what the Fed is going to do in March at their next interest rate-setting meeting.

And all those ingredients taken together? When mixed, they make a forecast. And that’s kind of like the batter, Indarte said. So long as they get the batter right, when the Fed announces interest rates, there’s not going to be a big market reaction.

But, as anyone who’s baked can probably relate to, sometimes you get the batter wrong.

“If we forgot a crucial ingredient, maybe if we overlooked house prices, then our cake might fall flat,” Indarte said.

Get the ingredients wrong or leave one out, and what comes out of the oven might be a surprise. It happened at the beginning of the pandemic: Nobody had an emergency interest rate cut on their list of ingredients in March 2020, and traders reacted with extreme volatility.

But there’s nuance, too. Sometimes it’s not that you’ve got the wrong ingredients, it’s that the measurements aren’t right.

“You could have the same people looking at the same information, but if we can’t agree on how to put that information together, if we have different narratives about the significance of the jobs numbers versus consumer sentiment and so on, we can come up with different forecasts,” Indarte said.

And lately, between government shutdowns that have delayed the release of data reports and staffing cuts at the very agencies that produce those reports, we’re kind of just eyeballing the ingredients.

“If you don’t have a complete recipe — maybe you have all the right ingredients in front of you, but you don’t know the proportions,” said Indarte. “You might have had a chance to get to the right recipe, but if you’re if you’re missing maybe the knowledge or skills in order to get there, then it might not work out.”

That’s all to say, a cake is only as good as its recipe and a forecast is only as good as its parts. At the end of the day, it’s all about the quality of the ingredients.

Market place

Analytics

Dollar dips after Supreme Court rules against Trump’s tariffs

The dollar declined in volatile trading on Friday and was poised to snap a four-session streak of gains after the U.S. Supreme Court struck down President Donald Trump’s sweeping tariffs based on a national emergency law.

The justices, in a 6-3 ruling authored by conservative Chief Justice John Roberts, upheld a lower court’s decision that the Republican president’s use of this 1977 law exceeded his authority.

The dollar was initially higher on the day after U.S. economic data showed a higher-than-anticipated inflation reading while economic growth fell well short of expectations.

The Commerce Department said gross domestic product increased at a 1.4% annualized rate last quarter, much lower than the 3% growth pace estimate of economists polled by Reuters. Analysts noted, however, that the number was negatively impacted by the government shutdown.

“The majority of this week has been dollar positive, except for right now, and why I’d say the ‘sell America’ trade got a little ahead of itself,” said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto.

“We have to see how Trump responds, how (Treasury Secretary Scott) Bessent responds, how the administration responds. We’ve heard all this talk that they have other ways of instituting these tariffs.”

Trump said in a briefing after the ruling that he would sign an order to impose a 10% global tariff under Section 122 of the 1974 Trade Act and would initiate several other investigations as well, while Bessent said that estimates by the department show the use of section 122 authority, combined with potentially enhanced section 232 and section 301 tariffs will result in virtually unchanged tariff revenue in 2026.

Separately, the personal consumption expenditures price index, excluding the volatile food and energy components, rose 0.4%, the Commerce Department said, after an unrevised 0.2% gain in November and above the 0.3% estimate. It rose 3% in the 12 months through December after a 2.8% climb in November.

The dollar index, which measures the greenback against a basket of currencies, including the yen and the euro, shed 0.09% to 97.80, with the euro up 0.06% at $1.1779. The greenback is up nearly 1% on the week, on track for its biggest weekly gain since November.

A business survey showed euro zone activity accelerated faster than forecast this month as manufacturing swung back to growth for the first time since October, though the dominant services sector marginally underperformed expectations.

The court ruling also did not address the issue of the government refunding the tariffs which were struck down, an issue Trump said could take years in litigation.

“The biggest uncertainty was whether the court would address refunds, which they did not. That is going to be the big next fight, with many companies already preparing for litigation,” said Tom Graff, chief investment officer at Facet in Phoenix, Maryland.

Analysts at Wells Fargo said in a note that the ruling was a “small net negative for USD, but probably not enough to change fundamental picture that favors tactical USD long bias.”

Friday’s data and the tariff ruling slightly dented market expectations the Federal Reserve could cut rates in the near term. Expectations for a cut of at least 25 basis points at the central bank’s June meeting – the first pricing in more than a 50% chance of a cut – dipped to 53.8% from 58.6% a day earlier, according to CME’s FedWatch Tool, opens new tab.

The dollar has been strengthening this week in part due to rising tensions between the U.S. and Iran. Trump said on Friday he was considering a limited military strike on Iran but gave no other details while Iran’s foreign minister said he expected to have a draft counterproposal ready within days following nuclear talks this week.

Sterling strengthened 0.16% to $1.3484 but was down about 1.2% on the week, its biggest weekly decline since January 2025. British retail sales volumes rose in January at the fastest annual pace in nearly four years, according to official data, while a survey showed British businesses have extended their early 2026 rebound into a second month.

Against the Japanese yen , the dollar strengthened 0.06% to 155.08 and is up 1.6% on the week, its biggest weekly gain since October. Japanese data showe

CNBC

Analytics

IMF Raises Saudi Arabia’s 2025 Growth Forecast to 4 %

The International Monetary Fund (IMF) has revised upward its forecast for Saudi Arabia’s GDP growth in 2025 to 4 %, up from the previous 3 %. Reuters+1 The adjustment reflects a swifter-than-expected easing of oil production cuts and stronger performance in the non-oil sectors. Reuters+1

This optimistic outlook extends to 2026, with growth similarly projected at 4 %. Arab News The upgrade underscores increasing confidence in Saudi Arabia’s economic diversification agenda under Vision 2030, and the resilience of its fiscal strategy even amid global uncertainties. Arab News+1

A stronger growth rate boosts investor confidence in both domestic and foreign capital flows.
It gives more leeway for public investment in infrastructure, culture, and social projects.
It validates Saudi efforts to reduce dependence on oil by enhancing sectors like tourism, tech, and entertainment.