Markets Have a Habit of Overreacting

Why It Matters

Understanding this bias helps investors and allocators identify where active management can add value by buying assets whose long‑term fundamentals are being distorted by short‑term sentiment. Exploiting these mispricings can materially improve returns in income portfolios.

Summary

Jay, a long‑tenured income investor, says markets repeatedly misprice long‑term assets by overreacting to short‑term events. He cites pandemic-era forecasts that locked in near‑zero inflation for Australia and recent market behavior treating state government debt spreads like corporate BBB risk as examples. Those extrapolations created mispricings that active managers could exploit. He argues each crisis is different but the tendency to project transient conditions into the future reliably produces opportunities.

Original Description

Markets have a habit of overreacting.

According to Janus Henderson Investors' Jay Sivapalan, CFA, some of the best income opportunities emerge when investors extrapolate short-term events too far into the future and misprice long-term assets.

Whether it was markets pricing near-zero inflation for a decade during COVID or treating state government debt like a BBB-rated company after Liberation Day, those dislocations created opportunities for active investors.

Check out all the insights from Jay, as part of Livewire's 2026 Income Series, here: https://lnkd.in/dcdXhd23