We track the mechanical flows shaping markets in real time, and we contextualize the news and macro developments that shift the fundamental picture. We do this not because we think the fundamental layer doesn’t matter (we are very interested in the macro and micro, and will occasionally comment on both), but because it is already well-covered elsewhere, and because these two dimensions remain the most underappreciated by most investors.
What follows is a framework for understanding how the price-insensitive mechanical layer fits into the full picture. We think it’s worth reading once, so that everything we publish after makes sense in context.
At the very core, the price of a stock reflects only two questions: how much money will this company make in the future (profit outlook), and how much is that future money worth today (derived via the discount rate)?
Future money is worth less than money today. If someone offers you $100 today or $100 in ten years, you take it now.
So investors apply a discount to future profits: the higher that discount rate, the less stocks are worth right now. That’s it. Every single thing that moves markets over the long term is either changing the profit outlook (the micro) or changing that discount rate (the macro).
What drives the profit outlook? Assumed demographics and the geopolitical environment are stable, government spending and cost of credit are the main pillars on which everything else hinges: innovation, corporate investment, employment, consumer confidence (which drives spending), etc. When credit and liquidity are abundant, risk assets rise or vice versa.
What drives the discount rate?
The discount rate has two components: the risk-free rate and an equity risk premium.
The risk-free rate is best approximated by the 10-year Treasury yield, which itself is driven by three things:
Then there’s the equity risk premium, influenced by the messy human layer: sentiment is influenced by fundamentals but can move independently of them, when either fear or greed take over.
The recent surge in trade policy uncertainty is a good example: the economic impact was still largely theoretical, yet markets sold off sharply as investors repriced risk in real time.
When fear spikes, investors demand more compensation for holding risky assets, raising the equity risk premium and pushing the overall discount rate higher, which mechanically reduces what future profits are worth today.
This equity risk premium is the most volatile and least predictable component of the equation.
Finally, the mechanical layer
On top of all of this sits a layer of flows that are entirely price-insensitive: they don’t ask whether an asset is cheap or expensive, they simply execute. This is arguably the most underappreciated dimension of market analysis; academic finance largely ignored it for decades, and the broader public remains largely unaware of its existence.
In a nutshell, a large portion of market capital simply follows rules:
These flows can dominate price action for days or weeks and have nothing to do with fundamentals, which is why markets sometimes move in ways that seem to make absolutely no sense.
Putting it all together
A simplified version of the full stack looks something like this:
The top two layers determine what a stock is worth. The mechanical layer determines what it trades at in the short term. Price and value can diverge significantly, and often do, precisely because price-insensitive flows overwhelm fundamental logic temporarily.
A word of caution: in reality, all of these layers interact and feed back into each other constantly. The arrow doesn’t just point down the stack but in every direction at once, making the stock market arguably the most complex system humans have ever built. No single variable, model, or framework can fully explain it. Price movements appear random because they are the product of millions of participants, each operating on different time horizons, different information, and different rules, all simultaneously.
The tools we offer aren’t a magic bullet, but they complete a part of the picture that most market participants are missing entirely.
Hope you had fun reading :).
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