Price Ratchet

What’s that sound? The sound of a price ratcheting up...or (God forbid) down.

When something big happens that triggers an obvious price change in an asset, it’s a price ratchet. Price ratchets happen from news spreading. A company doing better than everyone thought they would will see an upward price ratchet. Likewise, companies that report poor quarterly earnings compared to what was expected of them will see a downward price ratchet.

Geopolitical events also cause price ratchets. There have been price ratchets on the British Sterling pound after Brexit speeches. Sometimes, gas prices go way up or down in response to political conflicts in the Middle East. Other reports, like government-issued reports on the state of the economy, could price ratchet the entire stock market.

Price ratchets aren’t necessarily bad...but they are jerky.