The first thing to do while investing in the stock market (whether through mutual funds, ETFs or individual stocks), is to understand the current market environment. Then you must be able to adapt to those market conditions. 

I believe we are currently seeing a bear market, but knowing what kind helps. Academics talk about three types of bear markets. 

• Structural bears, like we saw in 2008 during the Great Financial Crisis, which often bring broad market indexes like the S&P 500 down over 50%.  

• Cyclical bears, are more closely tied to the business cycle, including rising interest rates or inflation. 

• Event Driven bears, sparked by some unexpected happening, such as we had in 2020 when Covid hit. 

But the current bear market seems to be a different animal. I call it a  

• Political bear. Let me explain.  

As I said in last month’s newsletter, stock markets Hate uncertainty. Capital H. We currently have uncertainty in huge waves as tariffs come and go, government programs change, and tax changes are on the horizon. I don’t expect this uncertainty to fade for a while, perhaps 6 months, when the effects of tariffs, government restructuring and more will be clearer. 

But one element driving this market downturn seems new to me, at least in its magnitude and visibility. That is the effect of political ideology on the markets. The poster child of this trend is Tesla, a company beloved by liberals who, for a decade or more believed electric cars to be a solution to changing climates and made Tesla the icon of the electric vehicle market. Now many of those same folks shun Tesla, or worse, despite the fact that Tesla’s goals and processes to improve the environment have not changed. The only thing that changed was the political leanings of Tesla’s founder, Elon Musk. 

This dynamic greatly affects the value of Tesla stock, and since it is a major component in most stock market indexes, those values as well.  

Political parties that are out of power always lament the state of the economy overseen by the other party, usually pointing at vague economic boogeymen (technical term, there). This has been true as long as I can remember.  

As the current administration works to reshape our economy, those opposing these changes have many obvious boogeymen to point at, despite the true effects of these changes not yet being known. The media and pundits furthering out-of-power political agendas greatly amplify this finger pointing. 

This injection of added uncertainty or fear into the investment decisions of this group has caused many to recoil from investing, similar to the Tesla effect for car buying. This is a politically driven force, but added to usual market jitters, it is enough to upset the normal balance of buyers and sellers, causing a poor market to become a bear market – a Political Bear. 

We believe that the best defense in a bear market is flexibility: the ability to move out of declining investments and into money market funds or other better performing investments. That is what we strive to do for you here at Shadowridge. You are in the right place! 

From the Inbox: 

This week, I found two gems in my inbox that are worth passing along. 

First, from an article first published by Forbes: The DOGE team is looking at IRS processes hoping to streamline operations, reduce waste and opportunities for fraud. A DOGE staffer pointed out that the IRS webpage login box increased errors and oversights because it was in the center of the page rather than in the industry-standard top right corner. The IRS staffer said the new format could be installed by July. With one phone call, a DOGE engineer reprogrammed the page in 71 minutes. If only this amount of efficiency could be leveraged across the entire government. 

Second, from an article first published by Business Insider: Admission standards at many elite colleges, prioritizing social sciences over hard sciences, have reduced the number of high-quality candidates for tech companies. One company, Palantir decided to cut the four-year schools out of the loop by offering internships to high school graduates, based purely on merit. They had hundreds of applicants in their first cycle, early last year. These are the same type of young prodigies following DOGE staffers around Washington these days. Palantir’s program has been so successful that 75% of interns are offered full time positions, and 95% of those accept. This type of insight is what has made Palantir one of the fastest growing companies in the world. And again, I hope this type of insight and flexibility can be injected into our sclerotic, bureaucratic government.