Throughout our investing lives, we have learned (or assumed) that:

• Good economic data = markets go up
• Bad economic data = markets go down

This makes intuitive sense, but our recent investing experience has been anything but normal.

​In his latest memo, Howard Marks shared the following cartoon that captures the confusing world we've lived in for the past couple of years...

...one where it's been incredibly difficult to discern how the markets will respond to various economic data.

It's a Good News, Bad News Situation

In recent years, good economic news (e.g., rising wages and consumer spending) has commonly resulted in market declines.

The assumption has been that higher wages/spending would fuel inflation and cause interest rates to stay higher for longer.

On the contrary, bad news (e.g., rising unemployment) has been seen as a sign of potential rate cuts, which the market has cheered.

To quote Tom Peters:

This reversal in the expected relationship between economic data and market reactions has caused a lot of confusion for investors.

We can see this confusion in the data:

Clearly, we've waffled a lot over the past couple of years, but we've mostly lived in a bizarro world where "bad news is good, and good news is bad."

But as the waffling has continued, keeping up with the ever-changing market narrative has been difficult, if not impossible.

Of course, the media has exacerbated this confusion by spinning the data to fit their preferred narrative.

Regardless, the markets have done quite well throughout this crazy period—further validating why it's important to "stay-the-course."

As the tide changes, many investors are asking:

Where are we today?

Is good news good and bad news bad again?

Or is good news still bad, and bad news still good?

There are certainly signs that we are moving back toward a more traditional market where good news is good and bad news is bad...

...but a complete transition back to normalcy won't happen overnight.

Patience will be required.

For normalcy to return in full, inflation will probably need to be comfortably in our rearview mirror.

And while the data suggests that inflation has declined significantly, we'll likely have to wait until after the election for the inflation talk to fade since it's sure to be a focal point in economic policy discussions.

Bottom Line

As the market narratives evolve over the coming months, don't feel like you need to adjust your sails for the prevailing wind.

Sometimes, we'll sail with the wind; other times, we'll sail into it.

In any case, the winds won’t matter much in the long run.

The underlying currents of human progress, innovation, and expanding global prosperity are likely to drive the markets forward over the decades to come.

As they always have.

Thus, as we consider the near-term future, we should remember that it’s far more important to be sure that "we're not wrong" than it is to be "precisely right."

Paradoxically, the best (and only) way I know to be sure “we're not wrong” is to refrain from guessing at all.

In other words, our outcomes are best if we stay focused on the things we can control and remain committed to our long-term plan.

Stay wealthy,

Taylor Schulte, CFP®