There is a question that is increasingly circulating amongst market participants, fund managers and institutional investors. A question that appears technical, but is in reality deeply philosophical: is the market still truly determining prices?
For decades, price discovery — the process through which supply, demand, fundamentals, expectations and risk all contributed to the formation of prices — represented the beating heart of financial capitalism. The market was, for better or worse, a vast collective mechanism of valuation.
Today, however, something seems to have fractured.
Not because markets have become irrational. But because they are progressively becoming “automatic”.
And that is an enormous difference.
The paradox of passive efficiency
The growth of passive ETFs represents arguably the greatest silent revolution in modern finance. A revolution that has democratised access to markets, dramatically reduced costs, and made it extremely difficult for many active managers to justify elevated fees.
Yet this very extraordinary success contains a structural paradox.
A passive ETF does not buy value. It buys index weight.
If a company increases its market capitalisation, the ETF automatically purchases more of its shares. If the stock rises, it receives further inflows. If it carries greater weight in the index, it will attract still more capital. In other words, price progressively ceases to be the result of a valuation and becomes instead the consequence of an automatic allocation mechanism.
This is a profoundly different dynamic from the traditional one.
In the past, the market rewarded a company because it generated earnings, innovation or competitive advantages. Today, more and more often, the market simply rewards what has already risen.
The distinction may appear subtle. In reality it is enormous.
Buybacks: permanent artificial demand
To this transformation a second element is added: share buybacks.
In the United States, large corporates have repurchased trillions of dollars of their own shares in recent years, frequently becoming the principal buyer in the market itself.
Here too, the issue is not moral but structural.
When a company uses liquidity — or even debt — to support its own share price, it introduces a form of demand that is relatively independent of the market’s fundamental valuation. The price no longer reflects solely the interest of external investors, but also the constant presence of a virtually unlimited internal buyer.
The result is an ecosystem in which available supply contracts, volatility is compressed, and drawdowns become shorter, shallower and psychologically less credible.
And this radically alters investor behaviour.
The market of flows, not of opinions
For a long time it was assumed that markets were driven by ideas. Today, more and more often, they appear to be driven by flows.
Flow-driven market.
An expression that perfectly encapsulates the new nature of contemporary finance.
What investors think no longer matters alone. What matters above all is where they must allocate capital. Pension funds, ETFs, quantitative strategies, systematic strategies, risk parity, volatility targeting, CTAs: enormous pools of capital move in accordance with mathematical models, volatility, momentum, correlations and automatic mechanisms.
Price therefore becomes the result of technical dynamics that often precede — and sometimes supplant — traditional economic analysis.
This is why, in certain phases, markets can continue to rise even in the presence of fragile macroeconomic data, cyclical slowdowns or apparently excessive valuations.
Not because the market “fails to see” the problems. But because flows continue to impose demand.
The psychology of retail leverage
Within this context there emerges a still more recent phenomenon: retail financial leverage.
New trading platforms have made accessible instruments that, until a few years ago, belonged almost exclusively to professional operators. Options, intraday margining, leveraged products, derivatives with very low operational costs.
The consequence is that a growing portion of the market no longer simply buys exposure. It buys acceleration.
And when entire communities of investors move simultaneously on the same themes — AI, semiconductors, meme stocks, crypto or individual “cult” names — price tends progressively to lose its informational role and take on an almost narrative one.
The market stops asking “how much is it worth?” and begins asking “how much further can it rise?”.
This is a psychological mutation before it is a financial one.
The era of 0DTEs: the market without memory
But perhaps the most extreme symbol of this transformation is represented by 0DTE options.
Zero Days To Expiration.
Instruments that expire on the very day they are traded.
In theory these are sophisticated tactical hedging tools. In practice, they are transforming increasingly large portions of the market into an environment dominated by micro-dynamics of the very shortest term.
Gamma exposure, dealer hedging, intraday squeezes, self-reinforcing movements: price, especially in the final hours of trading, can become the result of technical mechanisms entirely disconnected from any fundamental information.
The market no longer thinks in quarters. Sometimes not even in days.
It thinks in hours.
And when financial time compresses excessively, even the collective memory of risk tends to dissolve.
The real question
The issue, therefore, is not to establish whether markets are manipulated or inevitably destined to collapse. That would be a naive oversimplification.
The real question is something else entirely.
What happens to a financial system when price gradually ceases to represent a rational consensus on value and instead becomes the product of automatisms, passive flows, leverage and self-referential technical dynamics?
Because price discovery is not merely an operational mechanism. It is a form of collective intelligence.
And it is precisely this intelligence that, today, appears to be progressively anaesthetised.
The greatest risk is not necessarily an imminent crisis. It is something more subtle: a market that continues to function perfectly on the surface, whilst slowly losing the capacity to truly understand what it is pricing.