Markets that are freely traded, such as those for stocks, bonds, futures, and options, do not always react to fundamental news and reports the way a normal person might think.
For example, in August 2008, Burger King (BKC) reported its earnings. They greatly exceeded the earnings guidance that Burger King's executives had previously provided to analysts.
Based on these higher than expected earnings, one might expect that the stock went up. Instead, the stock went down sharply because, since their predictions were so far off, investors no longer felt that BKC management had any credibility.
As another example, Forbes columnist Ken Fisher has written about the "Presidential Stock Market Effect". Conventional wisdom might suggest that, when a Democrat is elected as president, the stock market should perform badly, because Republicans are more pro-business.
In actuality, the stock market has historically performed better during the inaugural years of Democrats, compared to Republicans.
This is because of "reversion to the mean" - which is a key to contrarian trading.The market expects the worst from a Democratic president when he takes power, but is then pleasantly surprised when they see that he maintains the status quo. In the same way, investors have high hopes that a Republican president will be pro-business. They expect the best, and get disappointed.
This is what makes trading on fundamental data very tricky. Not only do you need accurate and timely information, but you have to "out think" other market participants.
Like chess, you have to think many moves ahead, and try to piece together a puzzle based not only on what has just happened, but how other players will react, what actions they will take, etc.
How Markets React to Fundamental News and Reports