Understanding the Unpredictable Behavior of the Stock Market

Perhaps new investors aren’t concerned about valuations. Perhaps new exchange-traded funds (ETFs) have the potential to revolutionize Wall Street. Maybe company insiders aren’t rushing to sell. Possibly, earnings forecasts are more optimistic than we anticipate. It could be that an aspect of the market’s workings has faltered, or the entire market has developed a fresh viewpoint on stocks. Stocks are not just meeting these expectations, but exceeding them.

Artificial Intelligence and the Advertising World

Consider for a moment the story of Applovin. This profitable company has found a way to connect businesses to users – 1.4 billion of them across various platforms. Using generative artificial intelligence, Applovin enhances the performance of its ads. Given what’s happening in the advertising world, you’d be hard-pressed to find a company that makes more sense in this moment. This could explain why it’s up over 900% for the year, making it a roughly $140 billion company.

The Power of Limited Supply

As I explore the current state of the market, I continually return to one conclusion: there is a lack of supply. New companies are not issuing new stocks, even with record highs. With the abundance of alternatives to raise capital, such as private equity and venture capital firms, the stock market almost becomes irrelevant. It is not the go-to for raising funds anymore but rather just another option.

Cryptocurrency and the SEC

Considering the rise of cryptocurrencies, it’s worth noting the stance of the Securities and Exchange Commission (SEC). There’s an urgent need for the SEC to streamline the approval process and warn investors to approach all stocks with caution. While I am a proponent of a robust SEC, particularly on all cryptocurrencies save bitcoin and ether, it seems that at the end of Gary Gensler’s tenure as SEC chairman, he was out of sync with America.

The Implication of Low Interest Rates

If we observe the implications of lowering interest rates, it becomes apparent that this will only heighten the appeal of stocks. This attracts more funds through index funds, absorbing whatever meager new supply might be available. With the prospective wave of mergers and acquisitions, it’s crucial to remember that the incoming administration of President-elect Donald Trump will not be as anti-merger as President Joe Biden’s has been.

The Role of Value in the Stock Market

Lastly, it’s important to understand the role of value in the stock market. Stocks that represent value often struggle, especially if they have any links to tariffs. However, it’s worth noting that the worst possible thing you can say about a stock is that it represents value, particularly if it has any links to tariffs. The market currently only favors winners, showing no tolerance for companies that import from China or Mexico.

Final Thoughts

In my 42 years of investing, I’ve never seen anything like this. The winners of this market are those who believe in the stocks of companies that are experiencing unrestricted growth or have the potential for such growth in the future. While you might judge them harshly, I believe they are correct.

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