When the stock market falls sharply, as it has recently, many people look for an explanation. It's human. And the answers are often quickly available in the media: a politician says something, interest rates are raised, or concerns that the economy is slowing down.

But there is a problem with this kind of news logic: it only captures half the truth. Because the market is not only affected by what is happening in the outside world. It is also affected – and sometimes even more so – by how it reacts to what is happening. This is where the distinction between exogenous and endogenous forces comes in.

“The idea that the market is moved by news — external events — is a very inefficient way to look at the market. Most of the market’s movements are endogenous; they come from the market itself.” – Benoit Mandelbrot (The (Mis)Behavior of Markets)

Exogenous forces – the stuff you read about in the news

Exogenous forces are external events that affect the market: politics, central bank decisions, wars, pandemics, trade conflicts, you name it. These events are usually what make the headlines, and they provide a clear narrative to latch onto:

“The stock market fell due to interest rate concerns“

“Decline after new trade tariffs from the US“

So far so good. But why did the stock market fall 2% today and not yesterday? Why do some stocks fall much more than others? And why does the decline continue several days after the news has already been released?

Endogenous forces – the market's own psychology

This is where endogenous forces come in. These are things that come from within the market itself: how investors are positioned, what levels they watch, how algorithms react to price movements, and how sentiment influences behavior.

A concrete example: The S&P 500 recently fell below its 12-month moving average.

• Click here to watch video about the sell signal in the S&P 500

Many professional investors and systematic strategies use this type of trend filter. When the price falls below such a level, it can trigger sell orders – not because of any news, but because the rules say to reduce risk when the trend reverses. And when many do the same thing at the same time, it becomes a self-reinforcing movement – ​​which in turn can cause even more people to press the sell button.

News doesn't always explain the market

This means that the market can react strongly – even without any new dramatic news. Sometimes it is precisely the absence of good news that allows the technical situation to take over.

So while the media would love to give you a clear cause-and-effect explanation (“the stock market fell because of X”), the reality is more complex. Often, external and internal forces interact:

• A negative news (exogenous force) becomes an igniting spark
• Market structure and sentiment (endogenous forces) cause the fire to spread

Price-based signals are tools – not results

It is important to distinguish between systematic strategies that use price data to make decisions – and the notion that price predicts the future.

Many robust strategies use price movements to determine when it is right to enter or exit the market. This type of trend-following or equilibrium-swinging logic can work very well over time – but these systems are not immune to regime shifts.

When the market moves from a trend-driven climate to a more sideways, volatile or news-driven mode, signals may work less well.

It is a common misconception – especially among beginners who have been saved by technical analysis – that the price itself is a predictor of the future. That technical analysis is leading.

But the price is not a crystal ball. It is a reflection of what has already happened – and how the market has chosen to react to that information so far.

Following the price is often smarter than guessing. But believing that the price leads reality is confusing the map and the terrain.

Conclusion

Understanding both exogenous and endogenous forces provides deeper insight into how the market works. News headlines can explain what happened – but not always why the market moved as much as it did.

The real movements often come from within. That's why it's not those who scream the loudest in the media that you should listen to – but the market itself.