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’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 financi