The Fear Trade vs. The Flow Trade
Confirmation bias fuels bearishness, but the flows favor homebuilders, metals, and EMs.
Every time the market has a couple red days, the same story plays out: sentiment collapses. Traders start hunting for every reason to confirm their fear — a weak data print, a scary headline, a technical breakdown. It feels rational, but it’s not. It’s confirmation bias at work: the tendency to seek information that validates our emotions instead of the full picture.
Behavioral economics teaches us that markets don’t just move on fundamentals — they move on how humans interpret risk. And right now, investors are overweighting risk because of another bias: loss aversion. Losses feel twice as painful as gains feel good. So two down days erase weeks of strength in people’s minds.
Market-Sensitive Groups Are Telling a Different Story
