FREE NEWSLETTER
Every so often, markets go stark, raving mad. Think about the tech-stock bubble of the late 1990s or the real-estate market in 2005 and 2006. But most of the time, markets—which reflect the collective wisdom of all participants—are smarter than any one individual. For proof, look no further than the sorry track record of professional money managers.
That’s why I think it’s worth paying attention to how the stock, bond and currency markets react to news. Are tariffs a big concern for investors? What about the new tax bill? Has the latest economic report rattled folks?
For answers, don’t ask your neighbors and don’t listen to the TV talking heads. Instead, simply observe the reaction of investors, as reflected in the financial markets.
For instance, based on how markets have been moving, tariffs are more unnerving to investors than the big tax bill making its way through Congress. In both cases, however, the reaction has been quite muted. Are you freaking out over the latest developments in D.C.? It seems most investors aren’t. Despite all the media handwringing over the current administration’s actions, the S&P 500 is down only modestly in 2025.
That doesn’t mean I approve of the current administration’s policies—or that I disapprove. Rather, I’m sanguine because of something that’s long been known, which is that financial markets have historically done equally well no matter who’s in charge in Washington, and that political machinations are just one driver of stock and bond prices, and a relatively unimportant one at that.
I fear that, in response to these words, folks will start posting political commentary. But that only proves my point, which is that some investors can’t separate their investment portfolio from their political beliefs. How many investors have sold stocks this year because they hate the current administration’s policies, only to miss out on the market’s partial rebound? My advice: Stop investing based on your political views—and listen to the market.
In general I agree that the political party in DC makes little long term difference in stock returns, although I think Dems have a little edge. However the political party in control now is so divorced from the past principles and experience that I think all predictions are off.
I don’t see this as “political” other than all of the dramatic changes in DC come from the GOP. It is more “ideological” where one party now believes the federal government is a useless waste of money, and taxes on the top 0.1% must be cut.
Rather than reading the headlines, you need to dig into the numbers and understand what the cuts in federal payroll, budgets, and attacks on hard working people (citizens or not) will do to the economy.
I can cite many examples. The attack on working immigrants will cost the USA $100 B a year in the tax revenue they pay (without getting anything for it) and billions more in lost productivity. They work for lower pay and at jobs Americans will not do. For example, construction on Martha’s Vineyard has almost stopped, because of one ICE raid. Many more are planned I am sure.
The Budget bill increases the deficit, and cuts taxes; the Bond market knows this.
Next year’s proposed budget cuts the NIH, NSF and cancer research by 40 to 50%, but increases ICE budget by 200%. How is this an investment in our future economic progress?
Where will the money that has funded our exceptionalism in medical and scientific research come from? Many brilliant international students and faculty are leaving, worried that even if their grants are funded they will be deported. People who believe this money is spent on worthless, lazy “deep state” leeches have never worked in a federal office or research lab, or know anyone who has. Read Michael Lewis’s “Who is the Government” if you really believe government employees do nothing.
The National Park Service generates well over $55 B in total economic benefits ( for $3 B budget) in nearby communities, but the proposed budget for next year may close 2/3s of our parks and monuments.
The effects on the economy of tariffs are well known from experience during the Depression.
Unless things change quickly, tax revenues will drop, deficit spending and unemployment will rise, along with inflation, and America is no longer going to be seen as the world leader of scientific progress and reliability.
At current P/Es the SP 500 is priced for perfection, and supported by the same seven or eight stocks. There are much better values elsewhere in the world, and TIPS look very attractive here.
“May” do this and “Will” do that. Really?
Read this morning: “There’s a lot of doom and gloom in the headlines. But even with stocks falling slightly on Friday, the S&P 500 just finished its best May in 35 years.” and as for the S&P 500:
As of today (June 1, 2025), SPX index 200-day simple moving average is 5785.24, with the most recent change of +2.84 (+0.05%) on May 30, 2025.Over the past year, SPX index 200-day SMA has increased by +1015.59 (+21.29%).SPX index 200-day SMA is now at all-time high.
Recent events remind me that I’ve been given good advice over the years. Possibly at the top is “keep your emotions in check”. Another is “Don’t get ahead of your skis”. Of course, none of the recent good news translates into future performance.
Per Jonathan’s request, I’m not going down the politics road here. But the recent sarcastic observation about the TACO trade suggests that the hoohah about tariffs may be temporary – or at least subject to moderation within a reasonable time. Significant changes to federal income tax rules and rates can be in place for a generation, though. I