How does breaking news affect markets?
Markets react to breaking news. How should you handle stock price fluctuations that follow major events?
Updated 
2 min. read
Short-term price volatility can be stressful when it negatively impacts your portfolio. However, it’s important to prioritize the long-term when managing your investments, explains Pauline Shum Nolan, professor of finance at the Schulich School of Business.
How does news impact stock prices?
When breaking news comes in stock prices will react. This is called price discovery. Investors will process the new information and decide how stock prices will be affected. And you'll see price movements following the news.
How do stocks react to news?
The type of reaction that we see depends on whether the news is good or bad. It’s also very important for investors to decipher whether the news has a material impact on their stocks. There's a lot of information in the market so it could get very confusing. Depending on the source and the accuracy, investors sometimes don't know whether they should act or not.
How to handle short-term volatilities
Typically, we see that markets digest new information very quickly because of how quickly information is spread, but sometimes it could also linger. Investors can protect themselves against short-term market volatilities by not worrying too much about short-term news and ensuring they have a well-diversified portfolio.
If you're investing for the long term, you should just make sure that you have the right asset mix depending on your investment horizon and that your portfolio is well diversified and protected on the downside, so that it can weather any sort of short-term negative news.
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