Why we're in a stock market soap opera

I originally sat down to write this article yesterday when the S&P 500 was a whisker away from reclaiming 6,000 points and things were looking fairly rosy.

And the angle was going to be that equity markets are currently in a perverse Goldilocks zone where all news is good news.

No matter the story, the news is never too cold or too hot for the stock market, it’s always just right.

Economic data comes in better than anticipated?

Great, it’s full steam ahead for markets.

Economic data comes in worse than expected?

Great, the chances of more rate cuts just improved, it’s full steam ahead for markets.

But that was before President Donald Trump and Elon Musk decided today was the right time to stage their inevitable falling out.

The reaction was swift and fairly predictable.

Tesla (NASDAQ: TSLA) dropped 15%, with the S&P 500 down half a percent and the Nasdaq Composite down 0.83%.

It turns out markets aren’t in a Goldilocks zone.

We’re in a stock market soap opera.

Logic is out the window, valuations are out the window (look at CBA) and so is hard data for the most part.

Stocks are now entirely at the whim of emotion and narratives, mostly those coming from the White House.

Maybe this is just a natural consequence of the outsized influence the US president has always had - we just never realised it.

Trump's policy announcements and actions can have a much more stark impact on the outlook for a particular stock or sector than any underlying numbers can.

As Schroders’ Sebastian Mullins told me recently, “we’re only one Truth Social post away from being wrong.”

That about sums up the current market.

If we step back for a second, what are the real implications for the Trump and Musk falling out?

Sure, Tesla and other Musk-run companies are likely to feel the impact of the bromance breaking down if Trump decides to target these companies as he’s already threatened to do.

And that explains Tesla’s dramatic drop.

But are we saying Musk’s formerly close relationship with Trump was previously and accurately factored into TSLA’s share price? How do you even price something like that to begin with?

And beyond that, what really changes?

Musk had already signalled that he was stepping away from his controversial DOGE program and this tiff is unlikely to have too much of an impact on Trump’s tariff plans either way.

Otherwise, earnings are still strong and projected to remain so.

Inflation is fine and jobs data is also fairly robust (even if US jobs data is likely to show a cooling job market when it releases tomorrow).

Rates are also likely to continue to come down, with the European Central Bank cutting rates further today.

But this type of ostensibly good news counts for little if a political figure can make a unilateral decision at any moment that can wipe trillions from the S&P 500 in a heartbeat.

So, how do you navigate this type of market?

I’m not sure. I’ll leave that up to you to work out.