Broker Check

Is The Stock Market an Optimist?

May 11, 2020

The health crisis that has ravaged our country has brought the economy to a screeching halt. The economic reality seems bleak; unemployment hit a shocking 14.7 % as April unemployment reports came in. And yet, the stock market posted positive returns for the week ending May 8th while the negative unemployment data was reported.

What gives? Why is the stock market going up while these negative reports are rolling in? Unemployment numbers, as well as inflation and Gross Domestic product (GPD) are all measures of the economy. Dow Jones Industrial Average (the DOW), NASDAQ, and S&P 500 are all indices that measure the stock market. The markets and the economy are separate.  There is a strong argument that they are interrelated or somehow correlated, but as we are seeing these days, the economy is our reality and the stock market is our hope for the future.

Last week, the stock market is showing optimism while the pundits are pointing out the negative news. Webster’s Dictionary defines optimism as hopefulness and confidence about the future, or, the successful outcome of something. The stock market is a forward-pricing mechanism where free markets wager on a company’s future earnings. Financial institutions spend big dollars on analytical data to slice and dice the fundamentals of companies to attempt to price the fair market value of future results. As we have learned the past few months, future earnings may be more elusive than we realize. However, optimism prevails as investors look towards the future and the hope that soon we will be back to work, and back to shopping, innovating, spending and growing the future. If you think about it, there must be a little optimism in all of us. Small business is the backbone of our country and is essential to the American spirit at work. The statistics are not in our favor, yet every day new businesses are opened and entrepreneurs put it all on the line for the hope of future success. Having kids, getting married and investing are great leaps of faith, hope, and optimism.

History does not repeat itself but, as Mark Twain famously wrote, it often rhymes.

On March 10th, 2009, the economic outlook was not good. Unemployment had risen to 8.5%, the housing marketing had all but fallen off a cliff and without warning, or news stories, or, as some would argue, without reason on that day, the stock market began an 11-year bull market. The previous day the Dow closed at 6,547.05, its lowest close in 12 years. In the year following, the stock market gained 60%, yet the pundits were screaming that we have come too far too fast and that we have not seen the worst.  Despite the news, companies innovated, consumers started to spend and investors voted with their dollars for brighter days ahead.  Investing does not promise an easy ride: it takes guts, trust, faith, and, well, optimism.  While the reality of the economy may be tough these days, the Oracle of Omaha, Warren Buffett, told his shareholders to “never bet against America,” and I have to agree. There will be days of doubt and struggle and down days in the market but hopeful I remain.  I am often asked if I am bull or a bear. Today I am Pollyanna because I am hopeful for our future.