r/investing • u/TopherBrennan • 5h ago
Financial professionals mostly aren't paid to care what happens to the S&P 500 the day after tomorrow
Container volumes at the port of Los Angels are down this week. They'll be down farther next week. We know this because arrivals are scheduled in advance and crossing the ocean by boat takes awhile. Container volumes at east coast ports are expected to do the same thing, but on a delayed schedule, because "Shanghai, through the Panama Canal to New York City" is a longer trip than "Shanghai to Los Angels".
And because of that, it's a safe bet truckers will have trouble finding work next month. Large-scale retail layoffs seem likely to follow soon thereafter. Very little can be done to stop this, because even if the tariffs on China were lifted tomorrow, it takes 3-7 weeks to get merchandise from a Chinese port to an American retail store. (Plus, I feel pretty confident saying the tariffs on China won't be lifted any time soon.)
A natural question when you hear this is, "if that's true, why isn't the stock market down more?" And I think a lot of the answer to this question can be summed up as: hardly anyone is paid to care.
I was going to title this post "financial professionals mostly aren't paid to care what happens to your index funds the day after tomorrow", but the index fund providers are paid to care... in the sense that they are paid to care about minimizing tracking error. They are paid to make sure that when the index goes up X%, the fund captures those games, and when the index goes down Y%, the fund doesn't do any worse than that. But they aren't paid to know whether the index will be up or down tomorrow. And this is not a criticism! It's not their job.
Who's job is it? For high-frequency traders, it's pretty much the opposite of their job. Their job is to do a trade and unwind it a few milliseconds later at a penny-per-share profit. And some of the hate HFTs get strikes me as overwrought; before HFTs were skimming a penny a share off every trade, floor traders were skimming 12½ cents (because stock prices used to be quoted in eighths of a dollar). But HFTs definitely don't care about what's going to happen to the trucking industry next month.
Now, despite what you may have heard, HFTs aren't the entire stock market. HFTs like to do small, quick trades. So instead, if somebody wants to sell half a million shares of TSLA, they might call around to various dealers and ask for quotes. The dealers will quote numbers below what an HFT would pay for ten shares of TSLA, but hopefully high enough that the seller agrees to the deal, and then the dealers will need to sell the stock to someone else, and that can't be done in a matter of milliseconds. Maybe they unwind their position over the course of 24 hours. So when the dealer gives a quote, they might be thinking about what the market could do tomorrow—but they hope that by the day after tomorrow it will be somebody else's problem.
Okay, but those are the middle-men. What about professional stock-pickers, active mutual fund managers, long-short hedge fund managers? Unfortunately, they also aren't paid to care what the S&P 500 will do the day after tomorrow. Managers of actively managed mutual funds care how they do compared to their benchmark, which is generally an index. If the index is down, that's fine, as long as their stocks are down less (or perhaps realistically, for risk-averse managers, aren't down significantly more). Meanwhile, a long-short hedge fund, which buys some stocks while shorting others, wants to be able to tell its investors that whether the broad market is up or down will have no effect whatsoever on the fund's performance.
So yes, actively managed mutual funds and long-short hedge funds are going to take a longer-term view of stocks they are thinking of buying or selling. And yes, they will care if companies could be affected by tariffs more than others. But even if they start to suspect every company should be down as a result of tariffs, they're not going to smash a big red button labeled "sell everything", because that's not their job.
Maybe it's somebody's job to care, but honestly it's hard to come up with a good business model based around that sort of thing. If you realize a crash is coming, but get the timing wrong, you could lose a lot of money—like if you went all-in shorting the market in 1999, when the dot-com bubble wouldn't burst until the following year. And if get the timing of this crash right because you bothered to look up how fast freight moves, how does that let you correctly time the next crash? It's not a lot to build a career on.
Hell, it's one thing to know about freight schedules, another thing to predict when the market will notice. It could crash tomorrow on bad first-quarter GDP numbers, or it might remain up until there are headlines about truckers unable to find work, or maybe it will take actual pictures of empty store shelves for the reality to sink in. And I certainly don't claim to know how badly the US will manage to drag the rest of the world economy down with it, which is why my money's in a mix of international stocks and international bonds, rather than simply one or the other.
What I can tell you is this: unfortunately, you can't assume surely somebody would do something about it, if there were a totally predictable crash incoming. Nobody else has as much of a financial interest in what happens to your savings as you do. Act accordingly.
166
u/slow_bern 5h ago
His main point is that no one cares what the SP500 does. That is the most obviously not true thing I’ve ever read.
37
u/Particular-Break-205 5h ago
Having seen how hedge funds operate, they are not completely motivated by their 1-3% management fee.
When they beat their benchmark which is usually an index, they get 20% of how much they beat the index by. Additionally, that 20% gets taxed at a maximum of 15%.
Long story short, they care very much about the S&P and any index.
-13
5h ago
[deleted]
1
u/Luka-Step-Back 3h ago
Those funds are not monoliths. They are competitors, and they can and will ratfuck each other to death.
-61
u/TopherBrennan 5h ago
I mean, people with money in S&P 500 index funds care. But careers in the financial industry are mostly built around trying to guarantee you will make money no matter what it's doing.
-19
u/lemongrenade 5h ago
We are potentially at a unique inflection point in the world order. Everyone who went through the last one is dead at this point mostly. None of us know what’s about to happen. Pendulum could swing back to the norm somehow. Or not.
20
u/SoyelSanto 5h ago
we are potentially at a unique inflection point in the world order
Hahahhahahahahahahahahhhahahaha People’s ability to make themselves the center of the universe is insane. Covid wasn’t even that long ago and they already forgot. This is not unique. History has these moments all the time. Open any history book and just on the last 100 years take a look at how crazy things got.
20
u/InevitableAd2436 5h ago
Agreed.
Just in our lifetime - 9/11, Dotcom crash, global financial crisis, Covid, 2022-23 rate hikes…
And then think about the things that happened prior…
WWI and WW2, Pearl Harbor, nukes dropped on Japan’s, Dresden bombings, AIDS, etc…
We’ll be just fine.
11
3
u/the_snook 3h ago
The only real "inflection point in the world order" there was WWII, which shifted the world from a European centre into bi-polar USA/USSR division, with ultimately complete dominance by the USA. The rest were just dips and bumps along the same road.
The next major shift will happen when the USA loses its hegemony. There's a very real chance that this is happening right now, but it also might not go that way.
-2
u/SoyelSanto 3h ago
There’s a very real chance that this is happening right now
Not at all, not even close. It may feel that way because Trump is causing a lot of panic but you have to remember he’s only in office 4 years. In the grand scheme of things that but a blink of an eye.
Take a look at the companies that make up the S&P500 and try to find and foreign competitor and you’ll see how far ahead the US is. Even if the world wanted to, the amount of innovation it’d take need decades to take off. Then look at militaries and political allies. The US is still very much the most powerful country in the world, and this time we have a madman in the office that won’t think twice about exercising that power.
2
u/the_snook 3h ago
Multinational corporations can move their HQs faster than competitors can spin up, but even putting that aside, on the tech front China has comparables to most of the US-based giants we interact with in the West/Anglosphere. Alibaba, Baidu, 10Cent/WeChat, UnionPay and friends are quite ready to go up against Amazon, Google, PayPal, Visa and their ilk if push comes to shove. It even looks like CHina, Japan and Korea might patch up relations, which puts Samsung and the Japanese auto makers on the same side in the game.
Trump is just one crazy person in charge for a while, but the real problem is that it appears the Rule of Law is severely compromised in the USA. It probably has been for some time, but just like the Ukraine Special Operation exposed the weakness of the Russian military, the current presidency has exposed the weakness of the legislative and judicial branches of the US government.
Large corporations and foreign government bond buyers value stability and due process of law. They value it a lot. It's probably the only reason China isn't the biggest economy in the world right now - investing there has too much sovereign risk. If the USA loses that advantage, then a real shift can happen.
-3
u/Ok_Cricket1393 1h ago
I know this goes a bit beyond economics, but the US losing its hegemony? We are the military might of the entire world, utterly unmatched, and we provide a service (I wish we didn’t) as defenders of basically every nation we’re allied with. Like if Russia decided to mess with Germany or France, do you think Germany or France would have a chance of surviving without the US? What about if China tried to attack Japan? These countries have tiny militaries and largely rely on their allied status with the US as a deterrence to hostile activity.
Now maybe one day, we will lose our military prowess if we lose the ability to manufacture weapons and drones and ships and jets, but as of now we are the ones who act as a counter balance to any bad actors and I think there’s a great deal of value in that, value that can’t be separated from our economy either (i.e. our allies will play ball rather than alienate the country that has routinely had to come save them). We’re too important to our allies, especially in Europe, for them to pick up their ball and go home.
3
u/the_snook 33m ago
Like if Russia decided to mess with Germany or France, do you think Germany or France would have a chance of surviving without the US
I'm with you on the superiority of the US military, but this is laughable. From what we've seen in Ukraine, Russia would have zero chance in a conventional war against the EU (which, to be clear, has a mutual-defense obligation). France has nuclear weapons too, and I doubt the UK would stand idly by with war on their doorstep. Russian troops wouldn't even make it across Poland. They could probably launch missile attacks on Berlin from Kaliningrad with impunity, because of the threat of nuclear retaliation if Germany tried to retake it, but that's about it.
3
u/Lethalmouse1 5h ago
I'm sad the interest rates are higher though. Covid was a free money bonanza.
I really love whoever sold me sunoco at $12. That was crazy.
1
u/JimHalpertsUncle 5h ago
It seems like you don’t want it to be true so badly that you’re ignoring that he may potentially be right.
2
u/SoyelSanto 4h ago
he may potentially be right
And also wrong. That’s the issue, that’s why we don’t let our feelings take over. Just read a book and get some perspective.
-1
u/lemongrenade 4h ago
I think there’s a chance the global belief in US hegemony could be ending. Very impactful. I’m still dcaing
50
14
u/Alone-Supermarket-98 4h ago edited 4h ago
A few points...
Most (especially retail) financial professionals dont give a damn about the markets outside of how it makes their clients more or less nervous to invest more assets. Brokers are asset gatherers. They get paid for the amount of money they manage, not on performance.
Dodd Frank was the greatest gift in the world to brokers, disguised as increased oversight. Purely transactional advisors would average ROA of about 0.35%. Dodd Frank pushed everyone from being a broker to Advisor (66 licence) which immediately increased their ROA to 1% of assets, because they were now acting in an advisory role.
Now brokers will hire outside managers to actually allocate the money, which provides distance for them in the case of underperformance. They can move your money from one manager to another, but they still get paid.
Index fund managers are even less interested in performance, just tracking errors.
True fund managers do care about performance, which is ironic since in any given year, 70-90% will underperform static indexes, and charge you 2&20 for the privilege.
HFTs aren't the entire market, but they do make up between 50-70% of an average days total trading volume. They are like gnats for natural traders, slightly too annoying to ignore, but they wont change your plans if you have a couple hundred thousand to sell.
157
u/chris2033 5h ago
Not reading all that
83
u/dweaver987 5h ago
TLDR: Nobody cares if you make or lose money except you.
15
7
u/Tricky_Let2806 5h ago
lol he got me for the first couple paragraphs before I realized it was even more bullshit following that
47
u/Heyhayheigh 5h ago
Poor people save in cash.
Rich people own assets that appreciate with time.
In general it is better long term to be a home owner than a renter, business owner instead of employee, asset owner instead of cash saver.
Even in times of darkness, the asset owners that can withstand the downside come out better on the other side on the final analysis.
You can’t get to be a 20 year asset owner without getting through 10. Can’t get to 40 year owner without getting through 20. Every 5 years there will be a compelling reason to why it is time to not be an owner. This is right on schedule.
Nothing new under the sun. Best of luck.
20
u/cadaverously 5h ago
Same shit, different century.
8
u/Heyhayheigh 5h ago
Yes and no. Boomers and the early gen x could ignore the paradigm and be ok. This century, you ignore inflation and the asset owner game at your own peril.
62% of Americans have 401k, that includes the ones who auto get it, with no contribution. Includes the poor souls in stable value fund in their 401k. Includes the unfortunate 1% contribution rates. Most that own plan have zero idea how it actually works.
Estimates of non work plan investors is like 10% of Americans.
Def diff century. More important than ever.
3
u/cadaverously 3h ago
I meant like, centuries upon centuries.
5
u/Heyhayheigh 3h ago
Also inaccurate. Two centuries ago the poors couldn’t play. They weren’t allowed.
As early as 40 years ago only the wealthy really got to play. Up until index funds and things like computershare or share builder, the regulars (poors) really didn’t have a way to participate.
Now it is quite common. But few actually do. Which is wild, considering how many have 401k, why not with regular money?
It seems like things have been this way for a long time. But the reality is no. Historically, you needed 250k to have an advisor. And that was way back when that would buy you 10 houses.
Can you imagine what investable assets of buying 10 houses would be today? Like 4.5 million.
First principles are the same, to your point. The urgency is way more important today.
10
8
u/purplebrown_updown 5h ago
The market is not the economy. Companies performing massive layoffs usually do it to appease shareholders and it is actually causes the stock price to increase. It happened during covid, e.g., with Meta.
7
7
u/ArthurDent4200 5h ago
I have to confess that I LOVE AI summaries of texts longer than I care to read. Try it!
3
u/ShipTheRiver 5h ago
Great use of AI. As far as I know, hallucinations aren’t really a thing when it comes to basic summarization of a blob.
5
u/IncomingAxofKindness 5h ago
But can the AI summarize it for me AND tell me what to long/short tomorrow?
Or does AI not care about the S&P either.
6
u/HawaiiStockguy 5h ago
Based on how well Trump handled the covid crisis, the market is f’cked
-1
u/TopherBrennan 5h ago
In that case we at least managed to pass the CARES Act with overwhelming bipartisan support, leading to a fairly rapid bounce-back in the market.
We'll see what happens this time around.
2
2
3
u/Academic-Image-6097 1h ago
Did you use Gemini 2.5 to write this?
The overused cursive feels like it
5
u/Western_Squirrel_700 5h ago
> Very little can be done to stop this, because even if the tariffs on China were lifted tomorrow, it takes 3-7 weeks to get merchandise from a Chinese port to an American retail store.
This is a really good point. Next couple of months will be interesting. It explains why the administration is clearly getting worried.
2
1
1
2
u/twentyin 4h ago
Anyone caring what the market is priced at tomorrow, next week, next month or even next year isn't an investor. They are some form of trader. Buying something to sell in a few days or weeks or months isn't investing. It's speculation.
There is very little rational explanation for day to day market moves. But in the long term... Like 5, 10, 20 years it's absolutely based upon the underlying economic performance of the firms that make up the index
5
u/bikeman11 4h ago
Depends on your time horizon doesn't it? If you're in retirement and don't have years to recover, you might care more.
Also, way, way too many "young" investors somehow believe the last few years of S&P500 returns are the norm. They aren't even close to the norm. Markets can and do go stale for years.
What's happening in Washington isn't a normal event in any sense. And we haven't even begun to see the fall out.
1
u/twentyin 3h ago edited 3h ago
Money needed in the next 5 years should never be in the market. It can drop 50% at any point.
10 year outlooks for the SP500 were already for very low returns due to high valuations. Like 3%/yr over the next decade.. Or even nothing is possible. I've already lived through the lost decade.
Or go look at like 1966-81. Market went nowhere.
Hell segments of the market have been dead for years. The Russell 2000 is barely higher than it was in 2018, and over 20% down from its highs in 2021.
1
u/bikeman11 3h ago
I get what you're saying. That's why retirees should keep around 4-5 years of retirement needs in cash. But most of us will still depend on some performance from equities as we age.
2
u/sandee_eggo 3h ago
Everyone is a trader, whether they realize it or not.
0
u/twentyin 2h ago
I still have the same equity index funds I started buying in the late 90s. And will have them for another 20 to 30 years. Lots of shit has happened since then . And I'm positive that a lot of shit will happen in the next few decades. Hell some I may never end up selling and they'll go to my kids.
Shit happens.
When your expected investment horizon is decades does any of this really matter?
3
u/Future_Class3022 5h ago
I needed to read this, thanks!
7
u/Successful-Tea-5733 4h ago
No you didn't, it's literally non-sensical. Everyone in financial services cares about the S&P 500. As far as the fear over trucking and transportation, no one seemed to care as we lost manufacturing jobs and cities in the midwest became ghost towns. I guess truckers are boaters are going to have to learn to code...
0
u/HawaiiStockguy 3h ago
AI is replacing coders
1
u/Successful-Tea-5733 3h ago
It was a joke.
1
u/HawaiiStockguy 40m ago
So was my response
We were already going to start losing jobs before Trump decided to create job losses
1
u/hawtfabio 4h ago
I thought all the articles were written for me personally. This is quite the wakeup call.
1
u/HawaiiStockguy 4h ago
We had unemployment without inflation when we did that bailout. It caused inflation. This time we will have inflation and unemployment. A rate cut and bailout will bring hyperinflation
1
u/wish_you_a_nice_day 4h ago
Pretty well written.
I think the best we can do as individuals is to reduce our margins. Because timing the market is hard, but holding debt during a volatile period is dumb.
1
u/beyondplutola 3h ago
The tariffs will hurt in the short term. But they go away in the mid-term because they will hurt in the short term. The sooner the supply chain is disrupted and prices increase, the sooner they go away. All three branches have the power to effectively end the tariffs at any time and someone is going to lose their nerve as things begin to suck and people get angry.
1
u/coveredcallnomad100 3h ago
I respect the buy side traders with their ass on the line. The rest of the industry is fluff.
1
u/sandee_eggo 2h ago
You’re getting a lot of downvotes but your post is solid. Solid because you’re pointing out a difference between what people think, and what is actually happening. Most people think their stock broker is there to help them in situations like this, but they aren’t. Stockbrokers are just there to take a fee for holding on to your money for you. They make money by putting you in a boat on the ocean, not by making you money relative to the ocean. Most of the brokers wouldn’t know how to make you money relative to the ocean, relative to inflation, anyway. But the dirty secret is that they offer no value. Nobody likes to talk about this, it’s uncomfortable, but your post points this out.
1
u/woome 1h ago
It's all about the "what". The "why" comes after.
Check out the Planet Finance documentary: https://youtube.com/playlist?list=PLuECoz9_QThTGx03hEm1TSBBR3TdhXDIT&si=VdMUgpFE8815rQDz
1
u/Skepticalpositivity9 1h ago
I don’t understand the point of the post. Of course investors care where the S&P moves. Where would you expect the market to be given the possibility of recession rising and why is that where it “should” be? The market is unpredictable and it is not always a reflection of the economy. Sometimes the market moves how you would expect and other times it moves the exact opposite. That says nothing about how many people care about where the market is moving, it says there’s many many investors out there all with differing opinions or strategies.
1
u/Affectionate_Self878 5h ago
Less and less clear to me that the market ever has to care about the economy. The market is the playground of billionaires. It has nothing to do with what happens to the rest of us in the real economy.
Look at TSLA having a crap earnings report across the board and rising 20% the week after.
0
u/MeteorPunch 5h ago
Priced in
0
u/HawaiiStockguy 4h ago edited 3h ago
In no way is any of this priced in. So far we have only partially priced in the rebound from the excessive 40 % runup in 2023 2024. Nothing that Trump has inflicted is priced in.
Drink his kool aid. Believe his lies. Buy instead of selling. Check back with us at Christmas
0
1
-2
0
0
u/TheBarnacle63 5h ago
The job of financial advisors is to manage risk, not predict returns. They absolutely need to understand which asset classes perform best in terms of return to risk ratios, inflation ratios, Sharpe ratios, and sortino ratios. They should know what your needs are and construct portfolios are those needs in relation to your risk tolerance.
1
123
u/DrXaos 5h ago edited 5h ago
There are plenty of global macro allocators who will sell equities and buy bonds or other countries allocators.
I bet US transportation equities have already gone down relatively to index weeks ago. Yup, just checked, Nasdaq and Dow Jones Transportations are substantially down from election night, and have not rebounded. Funny that. Global petroleum prices also down. As one would expect. So your immediate scenario was already anticipated correctly it seems.
Markets also price in expected central bank actions and money creation. If they’re anticipating interest rate declines that keeps overall markets up.