Fundamentals Drive Markets; Technicals Help with Short-Term Decisions

Investors and traders have long debated the importance of fundamentals versus technical analysis. Which one really drives stock prices? Which one should matter more in decision-making?

From my perspective, the answer is simple: fundamentals ultimately determine where asset prices go in the long run, while technicals provide valuable signals for short-term decisions.

In this article, I’ll share why I believe fundamentals are the true engine of markets, why macro factors are almost impossible to predict, and how technical analysis can still play a critical supporting role—especially for those managing smaller or mid-sized portfolios.

Why Macro Factors Often Distract Investors

If you follow financial news, you’ve probably noticed how often markets move based on headlines:

A central banker gives an interview.
A political leader posts a tweet.
Tensions rise in a geopolitical hotspot.

Suddenly, stock indexes spike higher or tumble lower.

There’s no question that macro factors drive markets in the short term. Inflation data, interest rate policy, GDP growth, and geopolitical risks all shape investor sentiment. But here’s the problem: these factors are nearly impossible to predict with consistency.

Think about it:

Even the best economists get forecasts wrong.
Professional analysts constantly revise GDP, CPI, and interest rate projections.
Geopolitical events—wars, tariffs, elections—can emerge overnight.

This unpredictability is why I don’t base my strategy on trying to outguess the macro environment. It’s not that macro doesn’t matter—it does—but relying on it as your primary tool for investment decisions can be a recipe for frustration.

Why Fundamentals Always Win in the Long Run

Over time, a stock’s price is defined by the company’s ability to generate cash flow, grow profits, and expand its valuation.

That doesn’t mean the market always prices this perfectly in the short term. In fact, investors often swing between fear and greed, driving stocks well above or below their “fair value.” But history shows that, eventually, fundamentals reassert themselves.

Let’s consider a few points:

Cash flow and earnings growth ultimately determine how much a company is worth. A business consistently generating strong profits will attract buyers, regardless of market noise.
Valuation is not fixed. There’s no single “correct” price for a stock. Instead, valuations fluctuate with sentiment, cycles, and expectations. That’s why fundamentals provide the anchor point—even when the market temporarily ignores them.
Stable political and legal environments matter. In developed economies with the rule of law, markets tend to reward profitable companies over time. In contrast, in countries with weak institutions or high political risk, even great companies may remain “cheap” indefinitely because investors fear external risks.

In short: fundamentals may not dictate tomorrow’s price—but they almost always determine the price five or ten years from now.

The Role of Central Banks

Since the 2008 financial crisis, another layer has influenced fundamentals: central banks.

Through policies like quantitative easing (QE), near-zero interest rates, and currency devaluation, central banks have dramatically shaped asset prices. These actions inflate both visible inflation (measured officially) and hidden inflation (seen in rising asset prices).

Does this manipulation change the importance of fundamentals? Not really. It may distort valuations in the short to medium term, but long-term stock performance still depends on earnings power and business strength.

The only real risk would be a deep, global depression—but with so many monetary and fiscal tools at their disposal, I find that scenario unlikely.

Why Technical Analysis Still Matters

If fundamentals are so important, why bother with technical analysis at all?

The answer: technicals provide valuable short-term confirmation.

Here’s how I see it:

A company may have great fundamentals, but if institutional investors aren’t buying, the stock may languish for years.
Technical analysis—tools like relative strength, moving averages, and volume studies—helps identify whether demand is building right now.
For smaller investors (say, managing under $20 million), this can be especially powerful. Unlike giant institutions, you can enter and exit positions quickly without moving the market.

In practice, I use fundamentals to identify high-quality companies—and then apply technicals to help decide when to enter or exit.

Misconceptions About Technicals

Many institutional investors dismiss technical analysis, arguing that:

TA doesn’t predict long-term outcomes.
Chart patterns can be ambiguous.
Fundamentals ultimately matter more.

All of this is true. But that misses the point. Technical analysis is not meant to predict a company’s future earnings. It’s meant to confirm short-term trends in supply and demand.

For example:

If a stock breaks out of a long consolidation with strong volume, it often signals that institutional buyers are accumulating.
If a stock keeps underperforming its sector despite solid earnings, it may indicate hidden risks—or simply lack of market interest.

By combining fundamentals with technical signals, you dramatically increase your odds of success.

Fundamentals + Technicals = The Best of Both Worlds

Think of fundamentals as your compass and technicals as your map.

Fundamentals tell you where north is—the long-term direction.
Technicals tell you which path to take—the best short-term route.

Neither works perfectly in isolation. But together, they give you both conviction and timing.

Practical Takeaways for Investors

Start with fundamentals. Always focus on companies with strong earnings growth, durable competitive advantages, and sound management.
Use technicals as confirmation. Look for relative strength, price breakouts, or accumulation patterns before committing capital.
Don’t obsess over macro. Stay aware of the environment but avoid making big portfolio decisions solely on macro predictions.
Stay disciplined. Remember that markets are emotional in the short term but rational in the long run. Fundamentals eventually win.

Final Thoughts

At the end of the day, fundamentals drive markets—they always have and always will. But ignoring technical analysis means missing a powerful tool for short-term decision-making.

For most investors, the best path is to combine both approaches: let fundamentals guide your stock selection, and use technicals to fine-tune your timing.

So I’ll leave you with a question:

Do you focus more on fundamentals, technicals, or a mix of both?

Disclaimer: This article is for informational and educational purposes only. It does not constitute financial, investment, or legal advice, and should not be taken as a recommendation to buy, sell, or hold any asset. Always conduct your own research and consult with a qualified professional before making any financial decisions. The author and publisher are not responsible for any actions taken based on the information provided in this content.