Date: March 8, 2024

State of The Union & The Markets

It’s amazing how many people ask me about the election and the impact of politics on the markets. I think that’s because all we hear is how the other person is going to wreck the economy and crash the markets. As with most commonly held beliefs, it’s all pure nonsense. There is no correlation to any of this. No single president has ever nor ever will have that kind of impact.

Last night was the State of the Union (SOTU). Regardless of who is in office, it has become a complete partisan stump speech. Talk about “unity” and “bipartisanship” and then attack the other side throughout the speech. Claim credit for all the good. Blame the other side for all the bad. After it ends, one network tells you it was the president’s finest moment and his greatest speech. Another network tells the president totally missed the mark. He is out of touch and tired.

Rinse and repeat for the red and blue parties.

I don’t remember when it changed, but this is not what I remember from earlier in my career when there was decorum, respect and common decency. Congressmen didn’t heckle and scream during the speech nor use profanity with the media. It’s all very cringe-worthy and embarrassing.

A quick look at the day after in the markets, it looks like markets used to love the SOTU until roughly 2000. Then the markets didn’t love the SOTU. Smart observers would comment that 2000-2002 and 2008-2009 were generationally bad bear markets. 2020 was the beginning of the pandemic.

Given what we heard last night and the fact that Congress is split, all initiatives are dead on arrival until 2025 when the election is over and new Congress is sworn in. It’s not even worth analyzing any proposals, especially in an election year. And let me conclude by stating that when I look at portfolios that will benefit under Biden and Trump, there is absolutely nothing to glean at this early date. Come back around Halloween.

The bulls have had a good week so far and I hear from the pundits that everything is clicking on all cylinders. All is well. Fed Chair Jay Powell testified and held his ground. The fact the no one is worrying worries me. I absolutely loved it in October 2022 when I forecast a new bull market and everyone laughed and chirped. It was equally as fun in January 2023 when I was looking for at least 15-20% for stocks with an outside shot at 30% and the masses were screaming about recession and bear market. Many people have now embraced the bull market which doesn’t mean it’s over, just that the easiest money has been made.

What’s going to happen when Nvidia stops going up 3% a day and actually corrects 10%+? Punishment is coming to those who have cast aside prudence and risk management.

Someone asked me if I regretted pruning some Nvidia. I did laugh out loud. I replied by asking why they didn’t ask if I regretted doing the same things with Apple, Google and Microsoft this year and selling Insulet last summer. No one ever went broke taking profits and reducing risk and exposure after a major run. Once again, it’s good, solid portfolio management.

When I saw pictures of Mount Snow yesterday, all I could do was shake my head. The worst season in history and it’s now the worst I can ever recall this early in March. It looks like mid-April. I am not ready to call it quits, but Ma Nature doesn’t really care what I want. Still hoping and praying winter returns and we get a few feet in March.

On Wednesday we bought MC and more TUR and more levered NDX. We sold levered S&P 500, some PMPIX, some BASE and some TYL.


Paul Schatz, President, Heritage Capital