Do new highs make sense?
There is considerable academic and market commentary showing that equity markets often take time – sometimes weeks or months – to digest new information fully.
While Eugene Fama’s efficient market hypothesis posits that prices reflect available information almost instantly, we know that information is not evenly distributed. For example, studies on “post-earnings announcement drift” demonstrate that after companies release quarterly results, share prices tend to drift in the direction of the earnings surprise for an extended period. This implies investors initially underreact.
Similarly, research on macroeconomic data releases has found that markets may respond immediately to headline numbers but only gradually incorporate the deeper implications of the underlying data.
The reason is human behaviour. Anchoring, confirmation bias, and information overload mean that investors often process complex or ambiguous information at differing speeds, and therefore, slowly. Markets trend because investors react to new information at different speeds, adjusting their positions as the full implications become apparent.
Market structure also plays a role: large institutional portfolios can take time to rebalance, and regulatory constraints or liquidity considerations can delay trading.
I wonder to what extent the U.S. shift to a different version of democracy, occurring as it is before our eyes and with little effective opposition, coinciding with an S&P 500 at all-time highs, makes sense.
Historic precedents suggest the transition from a democracy, where individuals enjoy almost boundless freedoms, to a nation within which individual lives become much smaller, is rarely a smooth one. And that suggests the S&P 500’s optimism, reflected in all-time highs, might be misplaced.
Whether on the ground or the stock exchange, volatility in America appears likely.
Following is a list of examples of actions that might be construed as evidence of the U.S. shifting away from democracy.
- Politicising data institutions
Firing of the Bureau of Labour Statistics (BLS) Commissioner: The President dismissed Bureau of Labour Statistics (BLS) head Erika McEntarfer after an unfavourable jobs report, accusing her of falsifying data without evidence. He then nominated a partisan loyalist – E.J. Antoni – who lacks traditional statistical credentials.
“Our Economy is booming, and E.J. will ensure that the Numbers released are HONEST and ACCURATE,” Donald Trump said in a Truth Social post.
Structural overhaul of statistical agencies: He proposed merging key statistical entities (BLS, Census, BEA) under the Commerce Department, cutting staff, eliminating surveys, and delaying reports – all raising alarms about undermining the objectivity and trustworthiness of federal data.
Widespread dismantling of federal data agencies: In his first 100 days, his administration aggressively dismantled federal data infrastructure, cutting reports, halting data collection, and pressuring scientists to align findings with political narratives.
Mass firing of inspectors general: On January 24, 2025, he abruptly dismissed approximately 17 inspectors general across major federal agencies – oversight watchdogs charged with investigating fraud, waste, and abuse – with little to no notice, raising alarms about undermining institutional accountability.
- Stripping the judiciary of power
Executive claims of total control: On February 18, 2025, an executive order declared the executive branch an extension of his will. It centralised legal interpretation within himself and the Attorney General, effectively stifling independent judicial checks. Loyalty screenings were introduced for federal employees and judicial candidates.
Weaponisation working group at DOJ: On February 5, 2025, Attorney General Pam Bondi set up a “weaponisation working group” within the Department of Justice to review “politicised” prosecutions. The group’s director publicly said they would shame individuals without charges – indicating a lever for political retribution.
Targeting judges and political opponents: He intensified verbal and legal attacks on judges, including suing all 15 federal judges in Maryland over decisions on his deportation orders. He also filed ethics complaints against federal judges who blocked his policies, and fired a New Jersey acting U.S. Attorney to install his personal lawyer.
- Deploying troops on streets
Washington, D.C.: On August 12, 2025, he federalised the D.C. police and deployed 800 National Guard troops under his direct control, despite violent crime being near 30‑year lows. The action bypassed city leadership and raised constitutional concerns
Los Angeles Protests (June 2025): Trump authorised the potential deployment of military and National Guard forces to suppress demonstrations. Legal analysts warned this could violate the Posse Comitatus Act, which restricts the domestic use of federal troops.
2020 Lafayette Square photo op: He ordered federal agents to clear peaceful protesters for a staged photo at St. John’s Church, saying he would “deploy the United States military” if governors didn’t “dominate the streets.” The spectacle was widely criticised as authoritarian.
- Silencing or targeting the media
Blacklist and media access restrictions: Following his second-term inauguration, the President created blacklists excluding mainstream outlets and selectively allowed pro‑MAGA media into the press pool.
Exclusion over naming dispute: In February 2025, he barred Associated Press reporters from briefings in retaliation for using the term “Gulf of Mexico” (rather than the renamed and contested “Gulf of America”) – asserted by his team as fact enforcement.
Legal threats and lawsuits: He filed defamation suits against media organisations (e.g., CBS) with minimal legal basis – viewed as intimidation tactics.
Historic precedents
|
Tactic |
Historical Example |
Details |
|
Politicising data |
Turkey (Erdoğan), Argentina, Greece |
Manipulated official statistics to control narratives and public perception. |
|
Silencing media |
Ferdinand Marcos (Philippines) |
Shut down dozens of media outlets, jailed or disappeared journalists during martial law. |
|
Using military on civilians |
Multiple authoritarian regimes |
Historically common to deploy forces against protests to enforce order and suppress dissent. |
|
Overruling judiciary |
Stalin-era USSR, various hybrid dictatorships |
Used legal frameworks and manipulated courts to eliminate or neutralise opposition within the judiciary. |
|
Propaganda and censorship |
Hitler, Stalin, Mao, Pol Pot |
Controlled media, rewrote history, suppressed dissent to maintain power. |
- Purging and politicising the civil service
Through mechanisms like Schedule F and mass layoffs – executed via the Department of Government Efficiency – he effectively dismantled merit-based protections, targeting civil servants aligned with diversity, equity and inclusion initiatives, and installing loyalists in their place.
In Stalin’s USSR and Nazi Germany, bureaucracies were systematically purged to replace career administrators with ideologically compliant individuals, consolidating autocratic control.
- Expanding executive power via “unitary executive” theory
An executive order (EO 14215) on February 18, 2025, centralised authority over independent agencies – like the FTC, SEC, and FEC – under direct White House control. It designated the President and Attorney General as the final interpreters of executive law.
Mussolini in Italy and Hitler in Germany similarly eroded institutional barriers, granting the executive branch unchecked authority and reducing the roles of legislatures and courts.
- Criminalising or harassing political opposition
The administration weaponised agencies to target critics – including revoking visas of pro-Palestinian students and activists, and using the IRS to audit law firms and news organisations hostile to the regime.
Dictators like Pinochet and authoritarian regimes such as those in Latin America targeted civil society and political dissidents using immigration or tax enforcement to suppress opposition.
- Manipulating elections and electoral administration
Through entrepreneurial orientation (EO) measures, he:
Fired the FEC chair, undermined its quorum, centralised federal control over elections, and mandated citizenship documentation for voter registration and stricter ballot rules.
Russian elections under Putin have been similarly manipulated via administrative overreach, data control, and election infrastructure interference.
- Curtailing protest rights and freedom of assembly
While specific executive orders are not directly cited, the administration encouraged federal and Guard deployments to cities, aggressively targeted political dissidents and students, and chilled public dissent
Many authoritarian regimes – such as Franco’s Spain or dictatorships in Latin America – stifled protests via martial law, sweeping bans, or broad “unlawful assembly” laws.
- Weaponising immigration and deportation policies
The administration rescinded almost 2,000 student visas – primarily from pro-Palestinian activists – often citing minor infractions, and relied heavily on monitoring tools (e.g., Canary Mission) to identify dissenters for deportation.
As an aside, Canary Mission is an anonymously run online platform – established around 2014–2015 – that compiles detailed profiles of students, faculty, and activists it labels as anti-Israel or antisemitic, particularly those involved in pro-Palestinian campus activism. It operates like a digital blacklist, presenting information that can follow individuals into their careers and personal lives.
During the Red Scare in the U.S. and in authoritarian states globally, immigration and deportation were used to neutralise perceived ideological threats.
- Centralising control over state and local governments
He federalised control of Washington D.C.’s police force, deploying National Guard without local consent. He also applied pressure in Texas to counter Democratic legislators who fled, demanding their return.
Authoritarian leaders have long subverted or replaced local governance structures to eliminate regional autonomy. This was seen in Francoist Spain and a variety of military dictatorships.
- Undermining international alliances and democratic norms abroad
Human Rights Watch and Amnesty International have documented the U.S. administration’s retreat from multilateral human rights bodies and a broader erosion of democratic norms worldwide.
Leaders like Stalin and others in the Cold War frequently withdrew from international institutions at times to limit external oversight and assert ideological independence.
Why is there Little Opposition?
One answer to that question is offered by The Guardian:
“…But in a much worse portent for democracy … Melissa Hortman, a Democratic state legislator in Minnesota, was shot dead at her home along with her husband Mark in what was called a targeted political assassination allegedly carried out by 57-year-old Vance Boelter, whose friends say was a Christian nationalist Trump supporter.
“Boelter, who is now in police custody, is also suspected of shooting and wounding another politician, John Hoffman – a Democratic member of the Minnesota senate – and his wife, Yvette. He is said to have had a list with more than 45 targets, all of them Democrats, at the time of his arrest.
“Rubin said the shootings created a climate of fear comparable to that of Weimar Germany before the rise of Hitler.
“Fear is powerful and pernicious,” he said. “People won’t be willing to be candidates for these positions because they’re afraid. The general public is intimidated. I’m somewhat intimidated.
“You can say passivity is immoral in the face of evil, that it is complicity, all the things that were said about Nazi Germany. Well, it’s easy to say that. In Nazi Germany, there were some courageous people, but not very many, because they were afraid.”
Investors slow to appreciate significance
Recently, journalist Terry Moran wrote, “…what you are seeing in the United States is clear as day. [He] is trying to change the nature of our political system. He wants to rule, not govern. And he is motivated by mad hatreds and boiling resentments that erupt in public and then become policy. There has never been a president anywhere near as dangerous to constitutional governance.”
Booms become bubbles, and bubbles always burst. The current equity rally to all-time highs seems at odds with developments as significant as a dismantling of the world’s most successful democracy.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
