The Anatomy of a Relief Rally

Markets just delivered a textbook “relief rally.” 

A 2019 study in PLOS ONE (“Relief from incidental fear evokes exuberant risk taking”) paired mild electric shocks with an investment task. When the shock threat was removed, participants’ risk appetite—and the expected value of the options they chose—jumped ~11 %.

Takeaways for today’s market:
• Relief fuels risk-on behavior. As macro stressors ease, investors systematically bid up risk assets. 
• It’s valuation, not probability, that shifts. The brain literally assigns higher worth to the same payoff once fear subsides. 
• Mind the half-life. If talks stall or other threats re-emerge, the reverse can happen just as fast.

Behavioral finance reminds us that emotion isn’t noise around fundamentals; it re-prices them. Managing portfolios means managing the emotional cycle too.