Understanding how investor expectations (not history) impact the stock market

Photo by Maxim Hopman on Unsplash

If you’ve been investing for a while, you’ve probably run into this head-scratcher: a company reports excellent earnings, continues to grow, its products are everywhere… and yet, the stock drops. On the flip side, there are times when the economy feels like it’s in the depths of despair, uncertainty is sky-high, and all you want to do is hold on to cash, yet the stock market is climbing toward all-time highs.

These disconnects can leave even seasoned investors scratching their heads. Why does the stock market often move in a different direction than the latest news would suggest? The key is understanding that stocks tend to rise and fall based on expectations about the future, not just what happened yesterday or even what’s happening today.

In this post, we’ll walk through a few real-world examples to illustrate how investor expectations shape stock movements and why keeping a long-term perspective is so important.

Stocks Move on Expectations, Not Just Results

When a company releases earnings, the results aren’t judged in a vacuum. What really matters is how those results stack up against Wall Street’s expectations and what they imply about the future. Even a strong quarter can disappoint investors if it doesn’t set up an even better next quarter, or if the outlook appears cloudy.

Let’s look at a few real-life examples of companies and markets to see how this can play out.

Nvidia: Beating Expectations Isn’t Always Enough

Nvidia has become nearly synonymous with artificial intelligence, riding a massive wave of demand for AI-driven technology. The company has been one of the hottest stocks in recent years, and when it reported earnings on August 27th, 2025, it once again beat expectations and projected double-digit growth ahead.

By most measures, that’s a strong quarter. Yet the stock dropped about 6 - 7% after the report. Why?

The Wall Street Journal summed it up well: “Nvidia beats, but it doesn’t wow.” Investors had such lofty expectations that even a solid earnings beat wasn’t enough. Concerns about competition, both in the U.S. and internationally, along with broader questions about the long-term trajectory of AI adoption, weighed on sentiment.

This is a good reminder that high expectations can be a double-edged sword. The better a company has performed in the past, the more the market demands from it in the future.

Dollar Tree: Good Quarter, Lower Guidance

Dollar Tree offers another example. Heading into its most recent earnings release, the company looked strong. It beat expectations significantly, and as a discount retailer, it can be seen as a potential beneficiary during times of economic slowdown.

But in the same report, Dollar Tree lowered its guidance for the next quarter. Despite the positive numbers for the past three months, the stock fell around 9% on the day of the report.

Again, this shows how the market looks ahead. The stock didn’t drop because of what Dollar Tree had done; it dropped because of investor worries about what the next quarter might hold.

Zoom: Popular Doesn’t Always Mean Profitable

Sometimes, it feels like you see a company’s product everywhere, so the stock must be doing well, right? Not necessarily. Zoom is a perfect case study.

During the pandemic, Zoom’s stock skyrocketed as people relied on it for work, school, and socializing. Usage was through the roof, and subscribers surged. However, as life began to return to normal, investors started asking: Where will future growth come from?

Even though Zoom still had more users and subscribers than before the pandemic, its stock price gradually fell back to pre-pandemic levels. The product was (and still is) widely used, but the growth trajectory flattened, and that’s what the market cares about most.

The takeaway: Just because a company is popular doesn’t guarantee its stock price will keep climbing.

When Bad News Doesn’t Sink the Market

So far, we’ve looked at situations where good news wasn’t good enough. But the opposite happens too. Times when the broader economy seems weak, yet the market is already climbing out.

The Pandemic in 2020

Think back to March 2020. The pandemic triggered one of the sharpest market declines in history. By late March, uncertainty was overwhelming. Millions of people were suddenly working from home, and nobody knew what the future held.

And yet, by April 2020, the stock market had already begun to rebound. Despite the human and economic toll that stretched well into 2021 and beyond, the S&P 500 ended the year up nearly 20%.

The market wasn’t reacting to the grim present; it was looking ahead to recovery.

The Great Recession of 2008

A similar pattern emerged during the Great Recession. The stock market bottomed out in March 2009, months before the unemployment rate peaked and long before the housing market stabilized.

In fact, housing prices didn’t bottom until late 2011/early 2012, and unemployment remained high for years. But the stock market was already well on its way to new highs by 2012.

This highlights a crucial point: markets move in anticipation of the future, not in reflection of today’s headlines.

What Investors Can Learn

So, what can we take away from these examples?

1. Individual stocks are unpredictable.
   Even when a company has great products and strong results, its stock might drop if expectations aren’t met or future growth looks uncertain.
   
   
2. The stock market and the economy don’t always move in sync.
   A struggling economy doesn’t necessarily mean a weak market, and vice versa.
   
   
3. Broad diversification helps.
   Investing in index funds or broad market ETFs reduces the risk of betting too heavily on any single company’s ability to meet sky-high expectations.
   
   
4. Focus on the long term.
   Trying to time the market based on short-term headlines often backfires. A well-diversified, long-term plan helps investors ride out the ups and downs.
   
   

Final Thoughts

The stock market can be confusing, especially when it seems to move in the “wrong” direction compared to the news of the day. But when you understand that it’s driven by expectations of the future, the disconnect starts to make more sense.

That doesn’t mean investing is easy, far from it. Predicting the future of individual companies is incredibly difficult, and even seasoned analysts get it wrong. That’s why it’s so important to build a broad, diversified portfolio and stick to a long-term plan rather than chasing short-term gains.

If you’re unsure how to apply these lessons to your own portfolio, it may be worth talking with a financial planner who can help you align your investments with your long-term goals.

Because at the end of the day, successful investing isn’t about guessing the next headline. It’s about preparing for the future and sticking with a plan that works for you.