How many times, especially in the last few years, have you found yourself saying, “I just don’t understand Mr. Market?"
  
Even after 30 years of involvement in, and countless hours of studying markets, I certainly have. The often counterintuitive 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. 

Some explanations for this confusion include the assumption that 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, but with some important differences.  

First, Mr. Market is far more “ruthless” in how he views events than most of us. Consider how markets will often rally during periods of war, natural disaster, or the 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 and production and counterbalances it with potential increases in production in other areas and/or government intervention—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.   

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. 

In 2020, when much of the economy struggled mightily, as did many sectors and stocks within the market, those were offset by other parts of the market, such as 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 take into account that not everything or everyone may be in the same place as us or having the same experience.  

Recently, we've expressed some concerns about the general valuation of the S&P 500, and yet it's important to note that those concerns were really driven by a select few sectors and companies. There are many other sectors and companies trading at attractive valuations with identifiable catalysts that are likely to manifest at some point in the next few years. 

The market is often discussed and viewed as a whole, but a better understanding requires one to study its internal pieces.  

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.  

So how does this relate to today’s market?   

A quick look back over the last five years, but truly any timeframe, shows there have been any number of things that could have sent the market into a prolonged downturn 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 is up over that timeframe, with the traditionally most risk averse asset class—equities—up considerably.

So, what is Mr. Market seeing that we may not be given the distractions from our personal circumstances, views on the state of the world, or political leanings, that's behind market resilience today? 

Continued growth from improving margins and efficiency.  

Regardless of the struggles in the world, there are countless people every day who get up, work hard, and try to make both their world and the broader world a better place. That is what investors should put their confidence in, not a political party or one’s feelings at any given moment.  

The result of these efforts is what’s behind some of the recent good news.

Stephanie Link, chief investment strategist at Hightower Advisors, says, “In 2025, we see the U.S. gross domestic product growing between 2% and 3%. An economy with this type of growth often is coupled with midsingle-digit revenue growth and 11% to 12% earnings growth, both of which are a tailwind for stock prices."

Link notes that a recurring theme through the midpoint 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," she says. "An encouraging sign is it's not industry specific. This is a trend we are noticing throughout the entire economy. As technology and artificial intelligence become more mainstream, we think margins can continue expanding and help companies become more efficient.”  

The impact of improving efficiencies and margins, as Link notes, is that, “As of Feb. 7, 62% of the S&P 500 have reported earnings. Seventy-seven percent of companies that have reported have beaten earnings estimates, and 63% have beaten revenue estimates. Overall, the current year-over-year 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.”  

This also reflects another commonly overlooked phenomenon in 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 the seemingly ever-present political strife here in the U.S., by pointing out the improving corporate margins, efficiencies, and resulting profits as “good news,” as insensitive, if not as 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 results in counterproductive outcomes that likely will hinder, not help, our ability to address the very things giving rise to our concerns.