I recently watched the Social Dilemma on Netflix, and I highly recommend it. While the primary point was to expose the potential dangers of social media on our youth, one must not overlook the discussion surrounding the algorithms and artificial intelligence designed to identify individuals’ subtle biases and, over time, nudge them further and further until a general interest has turned into an obsession. It was fascinating for me to learn that individuals logging onto a social media feed, within the same area and the same social circle, will see completely different posts, which are not at all random. While you may not be on social media, if you think this ends with Facebook, you’re sadly mistaken. You have landed on certain email lists targeting you with headlines that feed off your fears and emotions in an attempt to gain your attention, which leads to advertising dollars. Websites you visit have special ads designed specifically for your interests. Obviously, certain news outlets can report the same event with a completely different opinion attached. It is a sickening process which, unfortunately, leads to unwavering ideas that can often be incorrect and destructive.
Let’s look at the financial markets for example. Over these past few weeks, would you be shocked if I told you that the most recent gains were a result of the market factoring in a Biden win? “What?” you may ask. “How is this possible? If Biden wins, won’t the market crash?”
So many have forgotten about a subject matter that has dominated our headlines for years until we faced Covid. In fact, I can’t remember the last time I even heard the topic discussed, much less reviewed, from the context of the stock market. I realize it seems like eons ago, but do you happen to recall that little spat we’ve been having with China? Do you remember how tariffs and trade dominated our headlines for months, if not years, before Covid? Do you recall how the tariffs, imposed on products manufactured in China and sold in the US, were throwing many corporations into a serious dilemma, impacting not only their workflow but also revenues and profits?
While many folks have been so focused on the mega-cap technology stocks that have propelled this market higher for a variety of reasons, written about ad nauseum, most have forgotten about the countless other companies that have been stuck in the mud as they’ve dealt with tariffs and trade resulting in stock prices that have gone nowhere for many years.
However, in just the past few weeks, something has lit a fire under these companies. Stocks like Caterpillar (CAT), Cummins (CMI) and the entire Transportation Index (IYT) have awoken from their slumber, seeing money rotate into this area and giving yet another leg to the market strength we’ve seen since the March lows. “Why is this?” you ask. Well, it’s really quite simple. The market is predicting a Biden win and, with that, the market is factoring in a much more favorable China relationship. Markets seem to be factoring in a rollback of tariffs and a positive relationship regarding trade. I’m not saying that I agree with the position, but I am stating what I see and where money is moving.
How about green energy? Democrats have a history of supporting this sector, and it is one reason why we’re seeing solar shine (sorry, I had to) for the first time in years.
You see, one of the dangers of the media and an algorithmic based news funnel is that you will only read, see and digest more of what you already believe to be true. This cognitive bias is very dangerous. Have you ever been car browsing and settled on something you like, such as a certain brand of truck or SUV? Do you find it odd that, once you do, you begin to notice them on the road everywhere, when you never seemed to see them at all before? This subconscious awakening is nothing new and it is precisely why, whether you desire to do so or not, you will always seek out more information to support what you feel is already true.
Trust me when I say that I have to be aware of this in my own life. Not a day goes by that I don’t ask, “What is the other side of the story?”
There is a tremendous amount of uncertainty on the horizon, yet I urge you to be careful from assuming it all ends badly. It is this precise assumption that has kept so many from participating in the great gains the market has seen recently. Unfortunately, I believe it will keep many from participating in the future. Rather than draw a conclusion based on a headline or an opinion, let us all find peace in our longer-term plan, our allocations based on risk temperament, goals and real objectives.
I can all but promise you we will see market declines at some point in the future. If not in November, it may be December, January, or February. Almost every single year the market goes through at least a 10% decline, and every 3 – 5 years it is much worse. These are the facts, and as long as we’re comfortable with our long-term allocation and plan, we have to be very careful making knee-jerk reactions or decisions.