Barry Ritholtz: Market Performance Isn’t Due to President

In a recent Bloomberg article, the co-founder and chief investment officer of Ritholtz Wealth Management debunks the notion that the stock market’s record performance is tied to hopes around the president’s policy agenda.

Ritholtz argues, “First, there is the tendency of the markets to ignore the dysfunction in Washington—as they have for most of the past decade. If the markets are really rallying on expectations of good things from the government, then the inability to get anything done in the past few years should have thrown them into reverse.”

He goes on to explain some other human brain tendencies, including how it attaches itself to beliefs and uses information it gathers to support those beliefs (whether or not this is well-founded). Ritholtz writes, “If their internal models tell them the U.S. president is important (he is), to the economy (somewhat less so) and the stock market (even less so), then the goings-on inside the beltway must be significant (they mostly are not).”

The author points out that external factors often used to explain market performance simply “don’t add up,” but that our “mental models” try to make sense of things by holding tightly to “any explanation that seems even remotely plausible.”

“Too bad it’s wrong,” he says.