Ominous headlines have dominated the news since Donald Trump was elected president. A parade of unprecedented events, ranging from trade wars to mind-bending changes in the western alliances, have many on edge.
But not investors.
If there is a single question that I have heard more than any other during the past few months, it is: “How are markets so blasé about the endless threats to financial stability and order from the president?”
Many theories are tossed around. Some resonate more than others. What follows is a short summary of why markets haven't freaked out over the ongoing spectacle of what used to be called market-moving news, but today merely is the state of the world.
1. Just wait: I hate this arrogant, frustrating response. Typically, it comes from people who refuse to admit error after predicting disaster from the Trump presidency. It amounts to saying: The market is wrong, I know better and I will be proven right eventually. Any thesis that requires one to wait years to prove or disprove its validity is inherently annoying.
However, (you knew a however was coming, right?) momentum does sometimes carry things much further than anyone reasonably expects. During the tech bubble in the 1990s, there were overwhelming signs of absurd and inflated valuations; that went on for what seemed like a very long time before its eventual ignominious end. So too did housing excesses continue for a long time during the credit boom during the 2000s. That too, of course, ended in a debacle.
Maybe this will be one of those times, leading to crisis. Recall the maxim uttered by economist Herbert Stein: “When something is unsustainable, it will eventually stop.” I leave it up to you to decide whether whatever is happening right now is unsustainable.
2. Investors have become inured to the noise: The endless stream of blunt presidential tweets; the constant preening and posturing; the drumbeat of ego and bluster. We have a sense of what those alleged sonic attacks on U.S. consulates overseas must be like -- an annoying, relentless, headache-inducing, weapon of noise and disorientation.
When he was first elected, Trump could move markets and stock prices with a single scolding tweet. Now, not so much. Not only do markets barely respond to his Twitter outbursts, they seem willing to take the other side of the trade; stocks that Trump has disparaged have outperformed the ones he likes.
Why is this? The constant of human adaptability looms large. We eventually get used to just about everything (that doesn’t kills us), both positive and negative.