It’s been a tag line since caveman times that “ The markets hate uncertainty”. It all goes back to behavioral finance but I think a better phrase would be “ People hate uncertainty but computers don’t give a damn about it”. Each and every day we receive some sort of Tweet from the leader of the free world that should create wild swings in the financial markets. Yet, we seem to rebound from any down days and continue to move higher.
– President Trump accuses Amazon of being a job killer
– President Trump threatens “fire and fury”, to mean a possible nuclear war with North Korea.
– President Trump disbands his business leadership councils as the CEO’s walk away
– The President’s Chief Strategist resigns
That would be enough uncertainty to digest in any given year but it all happened in the last week!
I don’t know what President Trump’s agenda is and I’m not sure if he has one but I can’t help but feel that he is playing Russian roulette with his geopolitical stances….oh, I forgot about the Russians! I do know that much of what has gone on over the last eight months would have been enough to have many investors cash in and walk away from the table.
It seems hard for me to believe that the investment world has become so much more tolerant of uncertainty. Is it the same theory that the first punch feels worse than the fiftieth? Are we numb to all of this?
I think that the stability and continued climb of the markets has many factors contributing to it but here are my top two:
1.) Money is pouring into the stock market through index funds and target date funds that make up an increasing percentage 401k accounts. Many 401k plans have a Target Date Fund as their default option. These funds estimate your retirement age and allocate accordingly. I’ll discuss these funds another day as they are mostly poor investment strategies.
2.) The increasing use of computerized and algorithmic trading takes a lot of the emotion and the tendency to panic out of the market. As long as the price action is favorable, BUY, BUY, BUY!