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At Least Show Some Feeling
Important to remember: markets are ultimately mechanisms of capitalism. In many ways cold, rational, and unsentimental. While it’s tempting to assume markets will reflect the concerns we personally hold - humanitarian crises, political drama, or social unrest - the reality is that markets respond to economic fundamentals, not emotions or ideals.
This is why what we hold dear and believe should matter does not drive long-term market performance.
The Drumbeat Investors Can’t Ignore
History reinforces this fundamental truth: markets care about economic progress, future profits and shareholder returns. These few, pragmatic variables are what move markets over time. Put simply: Circumstances that strengthen corporate earnings and sustain economic growth lift markets. Things that threaten these pillars weigh on markets.
The harsh reality is that investors are a cold bunch. But this even-tempered approach has allowed capitalism to thrive and consumers to benefit exponentially over time.
Why Markets Shrug at So Much That Matters to Us
Markets recover rapidly from events that often evoke strong emotional reactions from the public. The collective community of investors doesn't respond to events based on their moral gravity or social significance but based on how those events affect economic activity and investment outcomes.
What do we see in recent history that supports this idea? Let’s look at recent examples:
Where Markets Focus: Lessons from the Past Five Years
COVID-19 (2020)
- A global health crisis that upended lives and economies.
- The market fell sharply - down 33% in just 34 days - responding to fears of a massive economic shutdown. (Which was, of course, realized).
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Yet once the economic trajectory improved, markets rallied and recovered swiftly. The recovery wasn't about the virus fading, but about economic impact easing.(1)
Government Stimulus & Inflation (2021 – 2022)
- COVID-related stimulus checks boosted short-term spending but fueled significant inflation.
- Inflation surged to 8% and the Federal Reserve responded with 2022-2023 rate hikes.
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Markets declined 25% in 2022 - not because of government stimulus checks per se, but because higher interest rates are a heavy weight on economic growth and company valuations.(1)
Ukraine War (2022)
- A tragic and destabilizing geopolitical event.
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Markets reacted modestly: a 3% drop in February 2022 amid broader 2022 economic concerns, bringing YTD losses to 8%.(1)
- Again, markets focused more on the war’s economic spillover than the humanitarian toll.
U.S. Political Gridlock (2023 – 2024)
- Despite intense media coverage and public concern, markets largely ignored the noise.
- No significant long-term impact was recorded.
Israel–Hamas War (2023)
- A major geopolitical and humanitarian crisis.
- Yet markets remained mostly stable, reflecting minimal global economic disruption.
U.S. Tariff Proposals (February – April 2025)
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Markets responded sharply: an 18% drop from February highs.(1)
- Why? Because tariffs directly affect global trade, corporate margins, and future earnings - core drivers of market value.
Bombing of Iran (June 2025)
- A significant geopolitical event with virtually no discernible economic impact.
- Markets remained resilient, reaching new highs just weeks later.
Final Takeaway
Markets don’t respond to sentiment - they respond to economics. The most enduring drivers of market performance are not related to human sentimental values, but rather the foundational elements of capitalism.
This perspective is critical for long-term investors. When does it make sense to tune out the noise or to actually adjust portfolios? Recognizing what drives markets provides a solid framework for investment decision-making.
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