(The Return of) the Uncomfortable Truth About Mr. Market 

Five Things You Should Know

1. Equity Markets – were down this week with U.S. stocks (S&P 500) falling –1.6% and international stocks (EAFE) down –0.45%. 
2. Fixed Income Markets – rose slightly this week with investment grade bonds (AGG) up 0.34% and high yield bonds (JNK) remaining flat.  
3. New Tariffs Pending? – President Trump announced this week that he intends to impose a tariff “in the neighborhood of 25%” of auto imports that could be in place as early as April 2^nd, with similar tariffs discussed on semiconductors and pharmaceutical imports. While nothing is official yet, the President is set to meet with global leaders over the next month to discuss trade relations as he seeks to reshape global trade. 
4. Global Stocks Rising – The European stock market closed higher on Friday marking the 9^th consecutive week of gains for the Stoxx 600 index as their earnings week comes to a close. Chinese stocks have also continued to climb on a fresh wave of optimism around the AI space and strong earnings from their tech space, with the Hang Seng Tech Index reaching its highest level since early 2022.  
5. Key Insight – [VIDEO & ARTICLE] Investing is hard enough, through emotions and confusion it can seem overwhelming. One cause for frequent emotions, and corresponding confusion, is major events that are troubling in nature and tempt investors to believe the market should react or have a certain sympathetic reaction. This week we discuss four key things to know that make “Mr. Market” different than you may expect or have considered before.

Insights for Investors

By Tim Mitrovich

(The Return of) the Uncomfortable Truth About Mr. Market 

“In the short run, the market is like a voting machine –tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine–assessing the substance of a company.” – Benjamin Graham 

What’s Up with Mr. Market Anyway? 
  
How many times, especially in the last few years, have you found yourself saying, “I just don’t understand Mr. Market”? 
  
I certainly have had more than a few even after 30 years of involvement in, and countless hours of studying, markets. The often counter-intuitive nature of how markets can, and do, behave over short periods of time is one of those “truths” you can know and still need to remind yourself of continuously. 

What explains some of this confusion?  

For one thing, we assume Mr. Market would behave like we would, i.e. get/be down after bad news, and cheer good news. To some extent the market does, but with some important differences we’ll cover this week.  

How in this world of global conflict, disruptive and possibly dangerous technologies, inflation, political discord and more can various markets and assets continue to gain in their value?  

Let’s explore …   

1. Mr. Market is Ruthless – First, Mr. Market is far more “ruthless” in how he views events then most of us. Consider how markets will often rally during periods of war, natural disaster or the recent global pandemic. We understandably, and correctly, consider the cost of life and other societal impacts. And while the market may consider that too, it does so only in terms of the disruption of consumption/production and counterbalances it with potential increases in production in other areas and/or government intervention (e.g. money in the system) that usually also occurs during such times. So, while we may be worried, sad or scared and thus think Mr. Market should reflect similar sentiment in the form of lower stock prices, he is usually looking past everything except the math.   

2. Mr. Market is Actually Not One Person but Many – Second, Mr. Market isn’t actually just one person but a collection of many. To that end, while many companies and stocks may struggle under a certain set of circumstances, others may thrive. There is no better example of this than 2020 where much of the economy struggled mightily, as did many sectors and stocks within the market, but those were offset by other parts of the market (e.g. technology) which pushed the overall stock market higher. It’s common for miscalculations to occur when we are more familiar with, or impacted by, something bad, and thus struggle to properly take into account that not everything or everyone may be in the same place as us or having the same experience.  

Recently, (see 2/7/25) we raised some concerns about the general valuation of the S&P 500, and yet that concern is really driven by a select few sectors and/or companies. There are many other sectors/companies trading at what we believe are attractive valuations with identifiable catalysts that are likely to manifest at some point in the next few years. Point being the market is often discussed and viewed as a whole, but a better understanding requires one to study its internal pieces.  

3. Mr. Market is Not the Economy – A third reason the market can confuse people is that the market is NOT the economy, at least not moment by moment as most would expect it to be. There are countless reasons for this, but perhaps the most important is that the stock market doesn’t reflect the entire economy, so much as it reflects those publicly traded companies within the economy. There is of course some correlation, but again as the COVID rally showed, often less than we assume. Furthermore, many companies through improving efficiency (see technology advancements), innovation and ingenuity can grow much faster than the economy as a whole which is comprised not just of the best companies but all the businesses big and small within it.  

4. So, is Mr. Market Always Rational? –  Absolutely not! As the quote above by Benjamin Graham refers to, there are certainly periods of investor fear or euphoria that can overwhelm the weighing machine. Such periods, and the associated manic behavior of the market during them, aren’t much different than trying to reason with a drunk. The key thing to keep in mind is that Mr. Market usually “sobers up” before our individual emotions can abate. Consider March of 2020, the whipsawing stock market, scary headlines and all the unknowns. Fear set in and panic ensued, and just about the time the stock prices were acting, and many investors were feeling, as if all was lost … Mr. Market saw through the fog of fear and began what would be a 65%+ gain into year end from the S&P 500’s intra-year low.  

For many it’s an uncomfortable fact to accept that Mr. Market does not care about us, our goals, our feelings or anyone else(’s) for that matter. Similarly difficult to possibly accept is that while Mr. Market may not be the kind of person we want to invite into our home for a dinner party, he likely needs to be someone we invite into our portfolios in order to afford those “dinners” and goals/necessities in the future.    

So How Does This Relate to Today’s Market?   

A quick look back over the last five years, but truly any timeframe, there have been any number of things that one could have reasonably deduced would send the market into a prolonged downturn and/or created severe volatility from COVID, to the outbreak of wars in Europe and the Middle East, to severe political unrest both here and abroad.  

And yet…  

Almost every major asset class besides the traditional safe haven of investment grade bonds (more than a little ironic) is up, with the traditionally most risk averse asset class, equities, up considerably.  

It isn’t a pattern or a recommendation, but a point that should humble us all. If I had come to you with all of the above and offered up more stocks or more bonds, most investors would have chosen the latter and subsequently lost money on both an absolute and relative basis.  

As a reminder of the market’s resilience in the face of negative events and headlines, take a moment to review the next two charts courtesy of First Trust overlaying noteworthy events on top of the S&P 500.  

So, what is Mr. Market seeing that we may not be given the distractions/disappointments from our personal circumstances, view of the state of the world or political leanings that is behind its resilience today?  

Continued Growth from Improving Margins and Efficiency  

As we like to remind clients, regardless of the struggles in the world there are countless people every day that get up, work hard, and try to make both their world, and the broader world a better place. Outside of one’s faith of course, that important fact is what investors should put their confidence in – not a political party or one’s feelings at any given moment.  

The result of people’s efforts is what’s behind some of the good news recently summarized by our colleague Stephanie Link who pointed out “In 2025, we see the U.S. GDP growing between 2-3%. An economy with this type of growth is often coupled with mid-single-digit revenue growth and 11-12% earnings growth, both of which are a tailwind for stock prices. A recurring theme we have experienced slightly through the mid-point of fourth quarter earnings is margin expansion; companies are beating top- and bottom-line estimates while keeping costs down. We think this is a result of many factors, such as increased productivity through technology, the integration of artificial intelligence in the workplace, cost efficiencies in supply chains, and improved workforces. An encouraging sign is it is not industry-specific; this is a trend we are noticing throughout the entire economy. As technology and AI become more mainstream, we think margins can continue expanding and help companies become more efficient.”  

The impact of improving efficiencies and margins, as Stephanie also shared, is that “As of February 7th, 62% of the S&P 500 have reported earnings. 77% of companies that have reported have beaten earnings estimates, and 63% have beaten revenue estimates. Overall, the current y/y blended earnings growth rate is 16.4% which would be the highest growth rate since Q4 2021 if it holds through the end of the reporting season.”  

The above also reflects another commonly overlooked phenomenon is that periods of trial usually lead to new innovations and breakthroughs that actually make things better, particularly within businesses.   

In Closing  

You’d understandably look at a person who responded to the various humanitarian situations around the world, or seemingly ever-present political strife here in the U.S., by pointing out improving corporate margins, efficiencies and resulting profits as “good news” as least as insensitive if not a crazy person.   

However, attempting to explain those realities to something that at the end of the day is nothing more than a calculator is crazy in its own way when viewed from that perspective. 

The market reflects the whole of the nation not just one perspective, political party or poignant reality. Personal trials, politics, painful stories and situations from around the world should impact us, they should guide our actions and efforts to help, likely with some of the “fruits” of our plans and portfolios. However, in general they should not direct our financial plans and portfolios themselves.  

To do so is to try to factor emotion into a calculator and usually result in counterproductive outcomes that will likely hinder, not help, our ability to address the very things giving rise to our concerns. 

At TEN Capital, it is one of our missions to contribute meaningfully to our broader community and world but also understand the best paths to do so and how to best navigate the countless different ways math and emotion impacts us all every day. 

Have a wonderful weekend, 

Tim and the team at TEN Capital  

Data, Just the Data

• U.S. Housing Starts – fell 9.8% in January off December’s 10-month high to an annualized 1.366 million. Severe snowstorms and frigid temperatures combined with rising costs and sticky mortgage rates dampened activity.  

• U.S. Jobless Claims – initial claims rose by 5,000 last week to a total of 219,000 and above expectations. Continuing claims also saw an increase of 24,000 to 1.869 million. 

• U.S. Existing Home Sales – were 4.9% lower in January for a seasonally adjusted annualized rate of 4.08 million. This marks the sharpest decline in 7 months.  

• U.K. Retail Sales – unexpectedly rose 1.7% in January (vs. expectations of +0.3%) for the strongest monthly expansion since May of 2024. A sharp increase of 5.6% in food stores led the growth.