Fix It Friday Ep. 25 - Why the Markets Keep Rising When It Feels Like The World Is Falling Apart

• Markets react to headlines in the short term but follow earnings over time
• Volatility is normal—and not a signal to change strategy
• Strong corporate earnings often outweigh negative news cycles
• Staying invested requires discipline and a long-term mindset

Disclaimer: [00:00:00] The following podcast by Fusion Family Wealth, LLC Fusion is intended for general information purposes only. No [00:00:05] portion of the podcast serves as the receipt of or is a substitute for personalized investment advice from Fusion or any other investment professional of your choosing. [00:00:10] Please see additional important disclosure at the end of this podcast.

A copy of Fusion's current written disclosure brochure discussing our advisory [00:00:15] services and fees is available upon request or www.fusionfamilywealth.com.

Jonathan Blau: Welcome to another [00:00:20] episode of the Fix It Friday edition of the Crazy Wealthy Podcast. Thanks for [00:00:25] joining us. So today I'm gonna talk about, uh, a common question that I've been getting.[00:00:30]

Uh, for the past, particularly for the past month, happens on and off during most crises, but [00:00:35] because of everything that's going on right now, I'm getting it quite often. And that question is, Jonathan, [00:00:40] how could the stock market be going up like it is when the world is coming to an end. Literally, [00:00:45] that's a quote from, from more than one person.

And I understand it, you know, [00:00:50] the current events are what we focus on, particularly with the 24 7 media outlet [00:00:55] that's putting all of the chaos in our face, uh, all, all day long and all night [00:01:00] long.

Voiceover: Welcome to The [00:01:05] Crazy Wealthy Podcast with your host, Jonathan Blau. Whether you're just starting [00:01:10] out or are an experienced investor, join Jonathan as. He seeks to [00:01:15] illuminate and demystify the complexities of making consistently rational financial [00:01:20] decisions under conditions of uncertainty. He'll chat with professionals from the [00:01:25] advice world, entrepreneurs, executives, and more to share fresh [00:01:30] perspectives.

On making sound decisions that maximize your wealth. And now here's [00:01:35] your host.

Jonathan Blau: Let's answer the [00:01:40] question. How can the market be going up with all this going on the war in Iran and Israel? [00:01:45] Uh, the, the price of oil spiking two days, 20% in March. [00:01:50] Uh, and on and on and on the politics. So. Oil prices while they spiked [00:01:55] 20% in just two days back in March.

Didn't stay at those levels. So we'll talk about that in a [00:02:00] few moments. There's recession talk and elections coming. Tariffs. Politics [00:02:05] feels overwhelming to almost everybody. So when people say, this doesn't [00:02:10] make sense. They really don't understand, uh, the reaction of the markets to [00:02:15] all this news, but here's the fix it Friday idea I wanna talk about today.

Most of what we are [00:02:20] reacting to emotionally is what I call noise and what actually drives [00:02:25] long-term investment outcomes is what I call the signal. Noise [00:02:30] versus signal. What an important clarification. Let me be clear about something. 'cause [00:02:35] this part matters. When people hear advisors say things like, markets don't [00:02:40] move on headlines or fear, that can sound wrong because obviously prices jump [00:02:45] around what we call volatility, when bad news hits and is advertised.

[00:02:50] That's very true. Markets completely react to noise in the short term. That's [00:02:55] volatility wars, oil spikes, scary headlines, political drama. Those things [00:03:00] can and do move stock prices around day to day and week to week. But here's [00:03:05] the critical distinction. Short-term price movement is not the same thing [00:03:10] as long-term growth.

Volatility responds to the noise, the [00:03:15] political issues, the wars, the inflation, the pandemic, et cetera. [00:03:20] Compounding long-term responds to the signal. Earnings. It's, as I said, many [00:03:25] times earnings and only earnings that drives long-term stock prices, not these other [00:03:30] things that we call noise over longer periods of time.

The signal that matters the most are [00:03:35] those earnings, the underlying ability of businesses to make money and grow profits. And [00:03:40] the reason that companies continue to make money and grow profits is, is a [00:03:45] twofold or, or threefold. So. When we have crises, [00:03:50] companies are rational. They're not like western governments who during crises might loan out more money and take on more [00:03:55] debt.

Companies do the opposite. They'll pay down debt, they'll lay off workers, they'll do whatever's [00:04:00] rational. Uh, for the second reason that they keep growing, which is the CEOs and leaders of [00:04:05] these public companies have a fiduciary duty to maximize our value as [00:04:10] shareholders. And that's exactly what they do, maximize value.

And third, to minimize losses. [00:04:15] So. We need to combat the narratives that are [00:04:20] opinion based, which is, gosh, with this war and the spike of oil markets have to go down [00:04:25] opinion based narratives with actual facts. So let me do that. So we're, while we're still [00:04:30] early in earning season. As of mid-April, about 10% of the standard Poors [00:04:35] 500 companies have actually reported earnings.

88% of those [00:04:40] companies have beaten earnings expectations, and that number really matters in [00:04:45] context because historically, the five year average earnings beat rate is about [00:04:50] 78%. The 10 year is about 76%. So, [00:04:55] so far this earnings quarter having, uh, 88% beat the [00:05:00] earnings is dramatically, uh, better than long-term averages, not just good.

And [00:05:05] so that, that again, can confuse a lot of people. But again, that's the signal. [00:05:10] Earnings earnings are good. Uh, the market's not really gonna focus on the short term current [00:05:15] events, so. Why that explains what feels so confusing when [00:05:20] earnings are coming in, that strong analysts do not rush to cut forecasts.[00:05:25]

Companies don't panic with guidance, and investors don't permanently [00:05:30] reprice businesses lower. So even though headlines feel unsettling, the market's [00:05:35] saying so far, the businesses themselves are holding up. That's why you can have [00:05:40] wars, oil shocks, recession talk, and still see markets trend higher over [00:05:45] time.

And the oil spike, as I promised to come back to from earlier in the discussion is the [00:05:50] perfect example. Uh, oil is where a lot of people get stuck. Oil did [00:05:55] spike sharply in March, up 20% in a couple of days. And emotionally that felt [00:06:00] like it had to break something, particularly the stock market. But what actually happened, oil didn't [00:06:05] stay elevated.

Earnings forecast didn't collapse, and companies absorbed [00:06:10] cost pressures better than feared or passed them along to the consumers. [00:06:15] The market didn't ignore the shock. It processed, it adjusted, and moved on. [00:06:20] Short-term volatility showed up. Long-term earnings power stayed intact. [00:06:25] Why this always feels wrong.

In real time. Uh, [00:06:30] incidentally, this has a lot to do with what I talked about in the previous episode or one of [00:06:35] the previous episodes, number 23 called the Rear View Mirror Trap, hindsight [00:06:40] Bias. It's worth revisiting if you haven't, uh, if you haven't listened to it, uh, I, I [00:06:45] suggest that it might be a good time to listen to it because it talks about the fact that the current [00:06:50] crisis feels worse than all the others, not because of the severity [00:06:55] relatively of this.

Crisis versus the others. But because of resolution, all of the [00:07:00] others have been resolved. This one still has the perceived uncertainty surrounding it. When and how [00:07:05] will it get resolved? And so that's called the rear view mirror trap or hindsight bias. Again, [00:07:10] episode 23 is worth revisiting there, but every major stress point feels like this [00:07:15] time should be different.

The pandemic felt. Uninvestible, the financial [00:07:20] crisis felt like the system was gonna break permanently. And wars always feel like [00:07:25] they have to derail markets, and yet historically, markets don't wait for clarity. [00:07:30] They move before it. Why? Because earnings stabilize long [00:07:35] before headlines improve. So to fix this Friday, yes, [00:07:40] markets do move on.

The noise in the short run, that's volatility. But over [00:07:45] time, prices follow earnings, not fear. And I'll close with a quote. That captures this [00:07:50] better than anything I could have said myself. It's from a gentleman named Fred McLean, [00:07:55] who's the president of Heritage Investment Group, which CNBC recently ranked as the number one [00:08:00] advisory firm in the country.

What, what Fred said was, quote, we are very [00:08:05] long-term investors. We do not engage in market timing. Stock picking or [00:08:10] tactical asset allocation On any level, we don't react to market [00:08:15] movements or economic news. The key takeaway here is this tactical [00:08:20] allocation, which it means simply changing our portfolio strategy not to [00:08:25] reflect what we initially put together to meet our multi-decade financial goals with the highest [00:08:30] probability.

Tactical allocations when we change that plan in response to [00:08:35] every short term economic forecast and market move. Tactical allocation [00:08:40] is, is in our view, disastrous to success. So tactical allocation reacts to noise. [00:08:45] Strategic allocation, which is what did I put [00:08:50] together in my portfolio when I did my plan?

More investments that make 7% a year after [00:08:55] inflation than 3% a year, meaning more stocks than bonds. That's my [00:09:00] strategic allocation, and that should stay in tact through all the noise. Strategic allocation [00:09:05] is the plan that keeps you invested long enough for the compound to work. [00:09:10] Volatility responds to the noise, long-term wealth responds to the signal.

[00:09:15] Stay focused on what matters, and thanks for tuning in to this week's. Fix It Friday. [00:09:20] You can catch us on all your favorite podcast venues Crazy [00:09:25] wealthy podcast.com as well as fusion family wealth.com.[00:09:30]

Voiceover: Thank you for tuning into another episode of The [00:09:35] Crazy Wealthy Podcast. For more insights, resources, and to sign up for our [00:09:40] newsletter, visit crazy wealthy podcast.com. Until then, stay [00:09:45] crazy wealthy.[00:09:50]

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