What matters

When Netanyahu bombed Iran, Wendy was on it.

“OMG,” she texted me overnight (Note to self: take cell phone number off blog), “This is going to be BAD. Should I sell my funds in the morning???”

No matter how many ‘disasters’ befall us, the pattern never changes. Because the strongest human emotion is fear, we always expect the worst. Over the past decades the world was going to end multiple times. Y2K. Nine Eleven. Climate crisis. Pandemic. Credit crisis and bank collapse. But we’re still here with a bigger global economy, more people and AI.

For the record, the Israel aggression certainly jolted Mr. Market. Stock futures went down 600 points and the market opened more than 1% lower. Oil prices shot up 7%. Gold bumped higher.

Yawn. Predictable. It was a textbook response to the latest surprise. But certainly no reason for Wendy to lose her stuffing and SMS Garth. There’s little doubt that equities will regain lost ground by the end of the session, or the end of next week – in time for the next world-snuffing event.

So what does Mr. Market really care about? In other words, what should a nervous investor watch out for, as opposed to sitting bug-eyed and drooling in front of CNN?

Corporate earnings. The biggie. When a company makes more money, the share price goes up, more investors want the stock and demand helps push valuations. In 2024 we saw a nice 9.4% rise in earnings across the board for publicly-traded US companies. The latest numbers have been even more robust – despite the orange guy and his crazy Trade War. Earnings for the S&P 500 have jumped 12% over last year, and sales overall are up about 4.5%. Sweet. Bucks over bombs.

Monetary policy. Are interest rates going up, down or sideways? What’s the central bank going to do, reacting to employment data or cost-of living stats? Will financing charges for companies (and consumers) rise or fall? Will the economy be stimulated by cheaper credit, or choked off by less of it?

Lately CBs have been on hold. The banker guys are cautious, non-political, unflappable, deciding that doing nothing is the correct path until we all know if tariffs will bite into global growth or we just get more TACO. Respect has grown for the American Fed as boss Jerome Powell told to the president, campaigning for big rate cuts, to pound salt.

Inflation. Mr. Market cares about rising prices unsupported by economic growth since that devalues money and whacks the bottom line as companies deal with escalating costs. Coming out of Covid the entire industrialized world saw a surge, thanks to the disrupted supply chain and shortages caused by pandemic shutdowns. But that got fixed by central bankers who jacked rates to throw cold water on sizzling expectations.

Where are we now? Canadian headline inflation is well under the 2% target, but starting to heat up again. In the States the cost-of-living increase is slightly higher, at 2.3% in April and 2.4% last month. This is a victory, realizing the American rate was over 9% following Covid. It’s a solid reason stock markets have hit record after record in the last couple of years. It’s also why indices were down as oil prices increased following last night’s Israeli attack (Iran pumps a lot of crude). Higher energy costs bring inflation – but this is not expected to last.

Consumer sentiment. You can’t underestimate this. About 60% of the Canadian economy is made up of consumer spending. In the States, even more. Currently it sits just below 70%, ahead of the long-term average of 64%. So if folks are buying houses, Chevys, yoga pants and spending Saturdays in Home Depot – because they feel securely employed and confident in buying stuff – Mr. Market is also happy.

Lately consumer sentiment in the biggest economy on the planet is going up. Earlier today came news the latest University of Michigan survey showed a big jump in confidence, following that low inflation reading in May. So far Trump’s tariffs have not jacked retail prices enough to deter shoppers – although that may come later in 2025. Meanwhile both Americans and Canadians will be seeing personal tax reductions this year, with our nip coming into effect in less than a month.

In short, shocks happen. Investors get surprised. The unexpected rolls over us.

But investors have to get over recency bias. What’s happening now doesn’t mean it will occur later. Ignore the news and focus on the trends, fundamentals and the numbers that truly matter. Better still, invest your money reasonably, then forget about it.

A year from now Wendy probably won’t remember last night’s hit on the leader of the Iranian Revolutionary Guards. Unless she sold in a storm this morning.

About the picture: “Please find herein a pic of a little old chihuahua named Olive,” writes Cheri, “who sleeps the sleep of a creature that has a bed in every room, more blankets than anyone else, and does not pay rent or wages to the two human servants who labour mightily as her personal chefs and housekeeping staff. This happy state of affairs is maintained by a balanced and diversified portfolio, courtesy of the free advice dispensed over the years by yourself. Thanks for giving us the tools to design a more secure retirement. Your blog, and all the time and work you put into it, has helped make a difference in our lives.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/06/13/what-matters-5/