As usual, mainstream business journalists don’t understand the difference between correlation and causation.
The narrative among them is that the market is selling off due to fears of a Trump or Sanders presidency. As a general rule, I disregard any article that says “Market did ___ today because of ___” since it’s a huge oversimplification.
Sure, go ahead and criticize Trump or Sanders all day if you’re voting for someone else, but the market isn’t selling off because of them. It’s not how this works.
Let’s take Sanders first. He’s down in the polls against Hillary Clinton in key states. The market isn’t going to fear a Sanders presidency if he can’t even get the nomination, so that one’s out.
So, let’s take Trump. What have been the big drivers of the market selling off recently?
- Social media and tech valuations coming back down
- A two year crazy run in biotech prior to reality finally setting in during 2015
- Most importantly, oil dropping to the 30 dollar range, causing a pullback in North American exploration & production, which was one of the key drivers of economic growth and job creation over the last few years
You’re saying that this was all caused by Trump? Come on.
Business journalists: I know it can be a slow news day sometimes, and you have to fill up air time somehow, but seriously?
The narrative goes that if Trump or Sanders gets elected, legislation might not get passed. Um, okay. Legislation isn’t getting passed now. Seriously, name one major landmark piece of legislation passed since 2012. The budget doesn’t count. They’re supposed to pass a budget.
That one’s out.
Look, it’s fair game to criticize Trump or Sanders if you don’t like them, but they aren’t causing the market selloff. It’s just not how this works. What is really happening is that we’re in the first stage of a bear market. Frankly, these things happen about every 7 to 8 years, and with the last one being 2008, we’re almost due for one.
It’s a fairly safe call to disregard someone’s opinion on the market unless they’ve actually managed money in a professional capacity at some point, with the exception of Cramer who I usually disregard anyway. These articles or videos that I’ve seen about how “angry politics are scaring the market” are clearly made by people who do not understand what they are writing about and don’t seem to want to put in the effort to understand it either.
So, now that I’ve put the media on blast, the next group that I’m probably going to have to call out is underperforming fund managers. I already did that with Sequoia fund back in November, whose major holding Valeant was announced yesterday to be under SEC investigation.
I have no idea what Sequoia plans to do, but I can almost guarantee you that at least some fund manager or investment advisor is going to try to explain away underperformance by blaming it on Trump or Sanders. Having worked in wealth management, I’ve seen all manner of explanations for underperformance. Sometimes, it’s fully legitimate. If you want to beat a benchmark, you have to have a higher “active share” by making tilts from the benchmark, and sometimes those tilts just don’t work out—and in the long run, it could perhaps turn out to be just fine.
Other times…it’s just an excuse. I can almost guarantee you that “OMGZ TRUMP IS BAD AND SCARY LOL” is going to be the next excuse from underperforming managers.
The market is turning bearish. It happens; things don’t always go straight up. Manage risk accordingly.
PS: If you liked this article, please share it on your Facebook and LinkedIn to friends and colleagues. Also, I have more content on my YouTube channel here: https://www.youtube.com/channel/UCbx7QMkgpZlY-TcSW4xv1rA