The stock market continues to surge in the positive direction. Just this past week, the S&P 500 gained 3.5%. Incredibly, it is only down 10% for the year!
I say incredible because stocks are rising during a period of horrific economic damage being done throughout the world. Here in the U.S., the unemployment rate is at 15%, which equates to about 34 million people who lost their jobs due to the pandemic. Logically, you would think stocks would go down with such bad news out there. Here’s my thoughts on why they are doing the opposite:
- The stock market is a forward-looking mechanism. This simply means that the market is more interested in what is going to happen in the future than what has happened or what is happening. In this instance, the market believes that the worst is behind us and that we will start to recover from the pandemic over the next few months.
- The economic shutdown was self-imposed, and restarting should occur more quickly than, say after the 2008 financial crisis. Back then, banks and the financial markets were on the brink of freezing up. Today, most banks are well-funded and are helping to stabilize the financial markets.
- The Federal Reserve has taken extraordinary steps to keep money flowing through the economy. Knowing the Fed won’t let markets fail is a huge positive for stocks and bonds.
- News of vaccines being available within a year has sparked optimism that things will go back to normal.
Any resurgence in new covid cases and deaths could throw a big wrench into this comeback. So, those numbers over the next month or so will be very telling. You also have the questions of whether this thing is seasonal and how long the antibodies stay effective in our systems. But for now, the market is a glass-half-full kind of person, so let’s enjoy it while it lasts.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
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