Four major stock market issues that seem to be affecting the market outlook in the minds of many investors

Every three months, we send out our latest quarterly letter to our portfolio management clients; and as always, we also send it out to Inner Circle members who are not portfolio management clients further along in the quarter.

In each new quarterly client letter, we mostly focus on subjects that are not likely to change too much from one week to the next, but may have a big impact on investor sentiment and the long-term market outlook.

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Recently, I started out writing about five major issues that seem to be affecting the market outlook in the minds of many investors. Halfway through the job, I decided to drop what I had in mind for the fifth issue: Political polarization among U.S. voters and media.

I tentatively put that topic on the list because of the apparent breadth of the polarization. A lot of topics do have wide polarization within what you might call “the U.S. political opinion spectrum.” However, this spectrum seems to have a barbell structure: lots of weight at each end, not so much in the middle. Here is a by-no-means comprehensive list:

1. Use of drugs and/or surgery to change a child’s gender from male to female or vice-versa.

At one extreme, the view is that this is an irreversible step and should be undertaken only under drastic circumstances, and never on anyone below age 21. At the other extreme, the need for trans-gender treatment is an urgent matter, and so should be up to the patient and his or her medical/psychological advisors; it can best be treated as soon as the need is confirmed, as early as pre-puberty, without the need for any input from the patients’ parents.

2. Trump vs. Biden.

Biden supporters want to see Trump in prison. Trump supporters want to see President Biden in prison, along with his son Hunter.

3. Forgiveness of student loans.

Student loan forgiveness supporters feel these loans should be forgiven for all borrowers, regardless of the financial status of the borrowers or their families. Forgiveness opponents feel these loans should never be forgiven for any borrowers, regardless of the financial status of borrowers or their families.

4. Penalties for street crime.

The view at one extreme is that shoplifting, random street violence, minor theft, property-damaging riots and minor arson are all legitimate forms of protest or symptoms of psycho/social oppression and should be treated with therapy rather than punishment, and should not require the posting of bail nor pre-hearing detention. The view at the other extreme is that these are all crimes and should be dealt with as such.

Why we dropped #5.

You sometimes hear that this polarization of views is a serious issue that could potentially lead to a second Civil War for the U.S. That’s what spurred me to consider it for the list. After thinking about it, however, I decided to dump it.

The extreme views mainly take up limited space at the far ends of a broad political spectrum. Most Americans hold views that are closer to the middle. The spectrum is a stereotypical “bell curve.” The media focus on the extremes because it’s good for business. Nobody wants to hear that the sun rose and set yesterday without incident.

For that matter, you’ll find extreme views from both ends of the spectrum in virtually every one of the 50 states. But few if any states lean heavily toward one extreme or the other. Up to 50 individual civil wars could conceivably break out one day, but a single big one is out of the question.

After all, the U.S. Civil War grew out of a division along national lines—the South wanted to retain slavery and the North wanted to abolish it.

The suggestion that U.S. polarization could lead to a new civil war looks like one more example of media attempts at attracting viewers and readers. Ideas like that may make for interesting reading, but you shouldn’t let them taint your investment decisions.

Bonus tip: Use our three-part Successful Investor approach for all of your investments:

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.

3. Downplay or stay out of stocks in the broker/media limelight.

Do you think these issues are tainting the stock market?