Why Markets Move Even When Nothing "Seems" to Happen

A behavioral and macro look at volatility

By Rajesh Sharma

You check your portfolio in the morning and it's down 2%. By lunch, it's recovered. No major news broke. No company announced bankruptcy. No crisis erupted. So why did the market just swing hundreds of billions of dollars in value seemingly out of nowhere?

Welcome to modern market volatility, where the biggest moves often happen when nothing appears to be happening at all.

The Expectation Game

Markets don't react to news, they react to whether news matches expectations. This is why strong economic data can send stocks down, or why decent corporate earnings trigger selloffs. Big selloffs and quick reversals have been a feature of stock markets for the past 18 months, with this trend expected to continue into 2026.

Investors spend enormous energy trying to predict what will happen next. When reality doesn't match those predictions even if reality is perfectly fine prices move. The market isn't responding to what is; it's responding to the gap between what was expected and what actually occurred.

Federal Reserve Chair Jerome Powell could deliver identical speeches six months apart, but the market's reaction depends entirely on what investors thought he would say. Expected rate cuts that don't materialize can trigger bigger selloffs than actual rate hikes that were anticipated.

The FOMO-Fear Cycle

The US stock market is caught between two powerful psychological forces: fear of missing out on the artificial intelligence rally and concern that it's a bubble waiting to burst. This tension keeps markets on edge even during periods of calm.

Forty-two percent of respondents to Bloomberg's recent Markets Pulse survey predict the S&P 500 will climb by 10% or more in 2026, following three consecutive years of double-digit gains. Yet simultaneously, strategists warn that investors should prepare for both significant upside and downside moves in what Bank of America calls an "owl market," with cautious investors watching and waiting.

This creates a hair-trigger environment. When investors are simultaneously optimistic and nervous, it takes very little to tip sentiment one way or the other. A single analyst downgrade, a minor revision to earnings guidance, or even just profit-taking can cascade into significant moves as algorithms and momentum traders pile on.

The Concentration Problem

The tech companies at the center of the AI investment boom carry outsized influence. While divergence between tech giants and the rest of the S&P 500 has helped dampen realized volatility in 2025 as gains in tech cancel out declines elsewhere investors remain alert for stumbles in chip names to spread.

Implied correlation levels have dropped to record lows, according to UBS derivatives strategist Kieran Diamond. What this means in plain English: stocks aren't moving together like they used to. When everything moves independently, the overall market index can appear calm even when individual stocks are experiencing wild swings underneath the surface.

But this creates vulnerability. When macro drivers take over again a geopolitical shock, unexpected inflation data, or concerns about AI valuations correlation can spike suddenly, and the volatility index can surge.

The Valuation Paradox

The S&P 500's forward earnings yield is now nearly equal to the 10-year Treasury yield with an equity risk premium of just 0.02%, among the lowest on record. This near-zero spread means investors accept equity volatility without adequate compensation for the extra risk.

Market capitalization of the AI complex has surged by nearly $20 trillion since ChatGPT launched. If expected multi-trillion-dollar AI benefits are even roughly correct, a meaningful share of expected value is already embedded in current valuations. This creates what Fidelity calls "a disconnect between the positive short-term environment for risk assets, and a broader structural instability."

When markets price in perfection, any hint of disappointment triggers sharp moves. Companies beating earnings by 5% can fall if investors expected 7%. Good news becomes bad news if it's not good enough.

Conclusion

Markets move constantly because they're not reacting to today, they're reacting to revised expectations about tomorrow. Every data point, speech, or earnings report gets filtered through the question: "Does this change what we thought was going to happen?"

In 2026, JPMorgan strategists expect median VIX levels around 16 to 17, but with risk-off periods sending the index surging. Translation: expect longer periods of calm punctuated by sudden eruptions.

This isn't irrational. It's how markets process new information in real time. The apparent randomness isn't chaos, it's millions of investors constantly recalibrating their expectations about an uncertain future. Sometimes those recalibrations are small. Sometimes they cascade. And sometimes, the biggest moves happen precisely when it seems like nothing is happening at all.