Wall Street is a great storyteller, and the stock market’s record reads like a long collection of short stories. Investors need to identify not only what each story is about, but every aspect of the plot mechanics that makes it worth reading. Investors also must consider both the horizontal and the vertical dimensions of the story. The horizontal aspect refers to the timeline of events, while the vertical one depicts the changing levels of investors’ tension over the course of the narrative. Wall Street is great at creating tension and sustaining it for months, sometimes years, all the while engaging and captivating investors who keep returning for the next instalments.
Every tale comes with a “clock” — an event that lets investors know when it will end, so that they can focus on the critical components of the plot and forecast how it will conclude. Often a key macroeconomic metric such as unemployment, inflation, or GDP growth is the clock. Sometimes a political or regulatory event, like a presidential election or a meeting of central bankers, is the clock. At other times, it’s a geopolitical event. Over the course of the story, tensions …