by Tom Bradley

“While people search the market’s behavior for logic, there really doesn’t have to be any … sometimes the market interprets everything positively, and sometimes it interprets everything negatively. The market often fails to act rationally in the short run, primarily because of the role played by people in determining its course.”

In his post-election letter, Howard Marks of Oaktree Capital aptly describes what’s going on in the markets. Who’d have thunk? So much uncertainty and yet, such a positive reaction.

Are we to assume that Mr. Trump has a magic potion? Was it really that easy all along – just lower taxes, crank up infrastructure spending and promise to cut regulation. Are there no consequences to such a strategy? Are investors not worried that the most powerful person in the world is unpredictable, vindictive, loose-lipped and unproven as an administrator?

Stocks have been strong since Mr. Trump’s acceptance speech. Surprisingly so. What does it mean? Why is it happening?

Dare I say that it’s not just one thing (Trump), or even two. As is always the case with the capital markets, there are a number of factors, some in the spotlight, others lurking in the shadows. Investors seem to like Mr. Trump’s (potential) pro-growth policies. Maybe goosing infrastructure spending will cause inflation to increase, which is what the world economy desperately needs.

But there are non-Trump factors as well. The economic news has been good of late – U.S. housing is strong and the stats out of Europe are encouraging. And maybe, the markets are just retracing their steps. Stock prices were weak prior to November 8th, such that any clear-cut result was going to lead to an uptrend.

At the end of the day, there are many interconnected reasons why markets go up, down or sideways. Even when the news of the day makes it seem obvious, we don’t know for sure.

There have been many articles written about which stocks and sectors will do well/poorly with Trump in power. To me, there is one major takeaway: don’t bet too heavily on any of them. At transitional times like this, emotions are high, the quality of the information is generally poor and it’s hard to get a handle on the new government in Washington.

At Steadyhand, our fund managers are looking to take advantage of dislocations in the market caused by the transition (although we haven’t done much so far). Buys and sells won’t be driven by Trump-related themes, however, but rather company fundamentals (long-term profits) and valuation (price-to-earnings multiples). I think Mr. Marks would agree that in the long term, the market will act on those things.