How many times, especially in the last year, have you found yourself saying, “I just don’t understand Mr. Market?”

I certainly had more than a few, even after 25 years 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, that is, get or be down after bad news, and cheer good news. To some extent the market does that, but with some important differences.

First, Mr. Market is far more “ruthless” in how he views headlines. Consider how markets often will rally during periods of war, natural disaster, or global pandemic. We understandably, and correctly, consider the cost of life. 

And, while the market may consider that too, it does so only in terms of the disruption of production and counterbalances it with the increase in production and government intervention – money – 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 prices, he is looking past everything except the math.

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 when 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, such as technology, which pushed the overall stock market higher. 

When we are more familiar or impacted by the bad, it may be hard to take into proper account that not everything or everyone may be in the same place.

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. It reflects the publicly traded companies within the economy. Furthermore, many companies through improving efficiency, innovation, and ingenuity can grow much faster than the economy as a whole, which is comprised not just of the best companies but all companies within it.

The market isn’t always rational. 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 dealing with a drunk. The key thing to keep in mind is that Mr. Market usually “sobers up” before our individual emotions can abate. 

Consider last March, 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 were lost, Mr. Market saw through the fog of fear and began what would be a 65%-plus gain into year end.

For many, it’s an uncomfortable fact to accept that Mr. Market doesn’t care about us, our feelings or anyone else’s for that matter. 

Similarly uncomfortable to 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 in the future.

So, how does this relate to today’s market? Just when you thought things couldn’t get much more disheartening after the chaos of 2020, came the events of early January: Election drama, riots, political turmoil, new variants of COVID. The market must have plummeted right? Nope, up over 1.5% for that week.

So, what is Mr. Market seeing that we may not be, given our humanity or political leanings?

As market news source The Wealth Advisor noted regarding the disconnect between a strong market and political drama, “The positive outline here is simple: A slim Democratic majority is enough of an advantage to pass additional fiscal support but not large enough to pass more ambitious legislation like raising taxes or a Green New Deal. Some investors are calling this a ‘fiscal goldilocks’ scenario.”

Wealth Advisor went on to state, “Strategists see the early days of the Biden administration focused on one thing: vaccine deployment. And the smoother the rollout, the better the economic outcomes are likely to be this year.”

Furthermore, the market also reflects the whole of the nation not just one political party or point in time – no matter how disgusting the Jan. 5 event was, Mr. Market and this country over time reflect the middle ground or at least the balance of extremes to keep things on the rails.

My main message: As we begin the new year with tired minds after 2020, broken hearts after days like Jan. 5, and considerable confusion as to what lies ahead, let us not forget our personal and collective history of resilience.

And may we also take some comfort in that even when we may forget, despite his often cold and confusing nature, Mr. Market hasn’t.

Have a wonderful 2021 and may God Bless America.