FREE NEWSLETTER
Go to main Forum page »
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’m paying attention to that bill more than this hour’s tariff pronouncement.
A few years ago I thought oil and gas prices looked too low so I did something Humbledollar tends to disparage; I bought energy sector stocks. I doubled my money, in part because of the very unfortunate war in Ukraine, but I don’t doubt I would have at least beat the market average regardless.
What I just described is fundamentally against my political beliefs.
Investing in any mutual fund that owns prison stocks is also against my political beliefs. Unlike the brief rotation into energy, I would not buy these stocks.
But I do buy a little because they are in broad insex funds. At least I recognize my cognitive dissonance.
Your points are well taken and I agree with your assessment.
Historically, the differences in stock market performance between Democrat Administrations and Republican Administrations are almost equally divided, with the edge, since 1945, going to Democrat Administrations.
It has been my (adult) lifelong belief that the markets operate on three things, Fear, Greed, and Stupidity, and I am proven correct almost every single day.
Years ago, @1997-1999, I was listening to a presentation by Bill Bachrach, a Financial Educator and author of a book called Vales Based Financial Planning. He introduced a phrase I have used ever since then, “Financial Pornography.”
Financial Pornography are those reports, articles, daily news reports, talking heads etc.that have no real value to anyone, other than to stimulate irrational and usually negative and improper responses.
It has been proven time and time again that a low cost, broadly diversified, portfolio of indexed funds will beat the vast majority of financial advisors’ performance, regardless of what they call themselves, 85-95% of the time. Yet, you see people everyday, going through machinations of stock picking, asset allocating, “fine tuning,” market segmenting, you name it…only to fail to match the indexes performance.
A plan…any plan…you actually stick to…will out perform any plan that changes with the whims of the market, as you chase performance, and pay attention to politicians.
That’s very solid advice. The political moves very fast and often even insiders are surprised by changes in direction.
The markets seem to be telling (shouting to) conservative investors to consider some rebalancing. The S&P is up 50% in two years and valuations are well stretched by historical measures.
While we remain overweight in equities (75ish %) at ages 70, we scaled back equity exposure ~6-8% in March and with the recent May recovery. We also shifted a bit of our tech-heavy index fund exposure to more conservative MLP pipeline dividend paying exposure. Our small rebalancings are due to what the market seems to be telling us, not politics. Taking some gains off the table and sitting on an extra 5% of cash is a sleeping pill.
If the market continues up, we’ll take some more off the table, and if the market pulls back, we’re even more comfortable to sit tight.
I’d suggest “stop investing based upon the political views of others.” I also suggest what is disguised as entertainment is dangerous to our financial well-being.
Today it is far too easy to be swayed by mis- or dis-information. That leads to distraction which in turn leads to poor decisions. I provide my spouse with timely information on her retirement portfolio. I use tools to provide insights about the next 5, 10 and 20 years. It has taken her about 25 years to reach this state but today her financial well-being and frame of mind is largely detached from “current” events. She has her opinions but they no longer influence her decisions. Nor is she influenced by the opinions of friends and relatives. Noise, and that is their choice and their cross to bear, not hers. The money flows and she is happy. That’s the way it should be.
The best thing one can do is avoid the main stream media altogether. Why? Because in today’s world bias taints everything. Influencers will do literally anything to get viewers and are rewarded financially as the click bait flows by. Some spout their positions on cable news. Good for them.
Let’s not ignore the hedge funds. For one thing, “due to the amount of capital they control and the leverage they employ, hedge funds can have a significant impact on financial markets. When they make large investments, it can influence the price of securities and contribute to price movements that drive market trends……Hedge funds impact the market through their large investments, which can drive prices up or down. The actions of these funds can create volatility and affect overall market sentiment. “
In other words, when we see market movement, consider the possible sources. It may be hedge fund activity, political blather or other opinions that momentarily catch. Market movement does not always reflect the thinking of retail investors. However, when sufficiently stimulated we may be enticed to join the lemmings and go over that proverbial cliff.
I think it is useful to separate informed retail investors such as the HD readers from everyone else.
I spend about three hours each day reading and writing and believe me, the amount of pure garbage and rhetoric that is being printed can be overwhelming.
Others talk about noise. That’s what short term phenomenon really is. The markets are always moving. I have a dynamic list of my investments and each one changes from red to green if it is “down” or “up”. The colors cascade continuously through the list throughout the day. If one owns an index such as the S&P500 each one of the 504 companies in that index are doing the same. Watching this flow may be entertaining but it isn’t useful to me.
To get beyond the noise, some use a 200 day moving average, which provides smoothing. It does precisely what the name implies. It averages the price of a stock over the most recent 200 days. A chart can be built showing successive averages. Instead of a violent thrashing one sees a trend similar to a rolling hill. From time to time there are sharp changes. Why do people use these tools? Because they are more indicative of what their investments are doing. However, if one invests in aggressive and speculative growth stocks, they will experience more volatility.
Here’s a website:
https://wallstreetnumbers.com/indexes/spx/moving-average
Thanks for the thoughtful post and the link to the averages Norman. It’s always seemed to me that the markets look for excuses to be volatile. Looking backwards at the averages can help calm the nerves of the white-knuckle investors.
Signal and noise, Jonathan. Signal and noise.
Some people don’t know how to distinguish between the two.
Some people do know how, and just can’t bring themselves to do it.
And some people know how to distinguish between the two, AND execute on it.
Circle of control. Worrying about the market (especially daily) is worthless if you can’t do anything about it. Your only choices are in or out, and how much.
I haven’t sold and I have no plans to sell. That doesn’t mean I don’t have concerns. Beyond tariffs and deficits I am worried about crypto, but even more about the effect of AI. I am glad I am no longer in the job market.
Kathy, I just finished reading this book on AI. The author writes about AI for Fortune. I’m no expert, but it seemed to be a fair assessment of the potential benefits and risks of AI. If nothing else it got me a bit smarter about the topic. I miss the days of writing engineering code in Fortran (66 & 77).
Thanks for the link. I never wrote Fortran – I started with PL/1 and later learned C, but mostly wrote microprocessor assembler languages.
Updated to note I also have a request in at the library for this book on the people developing AI.
I am also concerned with AI. It’s no panacea. Also, the language models are being trained with what it sees in current newspapers, magazines, and online data. I’m concerned that the polarization of society will cause AI results to be overly dependent on the way a question is asked. So I want truth – not someone else’s version of the truth.
I have my share of worries about crypto. The market just told S&P 500 index investors that they now own digital asset since Coinbase Global Inc was added to the index last week, although only 0.1% of the total capitalization weight of the index. Furthermore, it is getting harder for passive index investors and 401K holders to answer on the 2025 IRS tax return whether they own digital assets or not!
Interested in your concerns about AI.
And here is a piece on bias in AI-generated images. Take note of the training materials.
There’s a running theory that with all these layoffs companies are figuring out that they can actually get things done without all the extra people, thanks to productivity-enhancing technology, like AI assistance for writing, scheduling, customer interaction, etc.
This is overblown, but headed in the right direction. I was a software developer, my job might survive the first rounds of layoffs, but would definitely be in jeopardy. Also, remember HAL.
Thanks for that link! I find it interesting that towards the end of the discussion there is a reference to Star Trek and an existence that has conquered scarcity.
Concerning AI and relevant concerns or dangers, I’m surprised to not see a reference to Isaac Asimov’s three laws of robotics from his early science fiction writings. Just insert AI where it says robot, and I think it makes sense for these types of precautions to be imposed.
1) a robot may not injure a human or allow a human to come to harm
2) a robot must obey human orders unless it conflicts with the first law
3) a robot must protect its own existence as long as it does not conflict with the first two laws.
The article brought I, Robot to mind for me as well.
Jeff – the book I linked to has an extensive discussion of Asimovs rules and counter definitions. It was pretty interesting.
Thanks, Rick. I just reserved a library copy and should have it sometime soon.
Of course, but unfortunately the people currently in charge of AI development seem to be driven by hubris, and likely greed. I see no one with the will, or even ability, to rein them in. I’m not sure how you would insert those laws at this point, without starting over.
Thanks for the link Kathy. The article and the book I referenced above are in general agreement. The book’s author writes that we need an international body, like the International Atomic Energy Agency, to help guide and regulate the AI industry.
Thanks for that link Kathy. Very interesting read. Especially so the part about AI’s lying on purpose, developing their own goals, saying what their programmers want to hear, and knowing this is happening already. Fascinating if true.
Back when I was a computer geek it was generally (but perhaps not correctly) thought that coding was only 10% of the job.
I might put it a bit higher than that. Since I designed and wrote microcode that interfaced directly with hardware I would be more protected than most, but I’m sure a sufficiently advanced AI could handle the job.
If you define investing from a HD point of view, I think it means that one has an asset allocation plan and buys and holds in accordance with the plan. And, that the plan has some kind of threshold that triggers re-balancing.
If you think that you could not stand to see your equity investments drop by 50% without responding, then you need to adjust your risk appetite with a lower allocation to equities. In a capitalist economy, there will be a time in the future that this will happen again.
“The Market Can Remain Irrational Longer
Than You Can Remain Solvent”
A. Gary Shilling
J. Maynard Keynes actually.
Shilling lives nearby and I have some of his home grown bee-honey thanks to a mutual friend.
Actually, it likely was Shilling:
https://quoteinvestigator.com/2011/08/09/remain-solvent/
Thanks, Jonathan. I am always appreciative of your voice of reason. I am still praying for you. Chris
I 100% agree with the view that too much credit is often given to professional money managers. One thing that really stands out to me is how some of these managers get one out of twenty calls right, and suddenly they’re branded as market experts. The rest of the time, all the calls they get wrong seem to disappear into the background.
Take, for example, the call I got from Fisher Investments last Friday. They reach out every few weeks, trying to convince me I’m making a mistake by not letting them manage my portfolio. I have nothing against Fisher, to be clear; but I posed what I thought was a fair question to their representative:
“What exactly do I get for the fee you charge? How are you going to outperform the broad market, and can you do it by a margin that actually justifies your cost?”
Of course, they can’t make guarantees which says a lot. But I digress.
The second point that really resonated with me was the reminder to keep politics out of investing. We should treat our investment decisions the same way we’d run a business. After all, would you refuse to sell a product to a customer just because their political beliefs differ from yours? I wouldn’t, and I don’t believe it’s wise to manage a portfolio any differently.
I don’t consider myself a sophisticated investor or any kind of financial guru, though I might be slightly more sophisticated than RDQ (just a little!) :-). The truth is, I’ve made almost no changes to my investment strategy in the last 15 years. I did reduce my international exposure a couple of years ago because that sector consistently underperformed. Sure, sometimes I wonder if I should’ve held on longer, especially seeing some recent rebounds but I have no regrets. My overall strategy has remained consistent.
In short, my investment wagon isn’t hitched to Washington; at least not in any way that meaningfully influences my decisions. People will continue to act in their own best interest, and that’s something investors can consistently rely on and capitalize upon regardless of who’s in office.
“After all, would you refuse to sell a product to a customer just because their political beliefs differ from yours?”
What do weapons manufacturers do? Is this moral?
Would you say the markets reflect a rather short-term view or does today’s performance consider longer term issues facing the economy?
Everyone including business likes tax cuts, but what consideration, if any, do the markets give to possible consequences?
I’m thinking long-term about deficits and debt, interest costs and the fiscal issues facing SS and Medicare.
It’s my humble opinion that Mr. Bond Market, at the longer end, 10 years and out, seems to think inflation is here to stay and that the deficit is only going to get worse. Our inexorable need to borrow more and more seems to be showing up in the price of gold and bitcoin. Noise or signal? I guess we’ll find out. You know, if you wait, the future will become much clearer. 🙂
Well, business tax cuts are a clear plus to the business world, and as far as I know the stock market is made up entirely of businesses. Individual tax cuts generally mean more money in the hands of consumers, and if Americans hate anything it’s good money going unspent, so that’s also mostly going to businesses. Long-term consequences? I would guess that most companies are worried more about the next quarter at any given time than the long term.
Hopefully you were thinking and writing about them 4 years ago as well.
Over ten years actually.
Market participants consider both the short- and long-term, but they give more weight to the short-term. That’s the time value of money.