With the recent rally, common sense appears to have to been put to the test. Many believe that correction was misstated. Why? The market declined 34% but already has been back up 25% so it’s now really only down 9%, barely enough to call it a correction. Really? If you have $100 invested in something and it declines 34%, a 25% rally does not take it up back to $91. Simple math says 25% of $66 is $16.50, so you have rebounded to $82.50, still representing a 17.5% loss.
But, our readers are not so naive. Still, what we are seeing is stocks and indexes follow earnings and earnings expectations. When the S&P 500 or an individual company’s earnings expectations begin to drop, the index or stock follows right along with those lowered expectations. Despite terrible earnings results (barring those who benefit from the pandemic) this week from all the major companies, the markets have barely flinched.
Future Wealth’s View
In this dystopian world that we are now living in, Wall Street seems to be celebrating while Main Street isn’t just hurting, it is disappearing in a very literal sense. Some states, fed up with being stuck at home, are reopening their economies against the advice of health experts, starting next week. Leaving aside that states’ rather cavalier decision to allow even high-contact businesses to reopen, one wonders how Wall Street will react when a surge of deaths result from the rush to open businesses.
If post 9/11 travel was a shock to travelers, post-coronavirus world will make that look like a walk in the park. Over the last two months, many Americans were forced to begrudgingly come to terms with a rather grim reality. As businesses large and small closed their doors, it became readily apparent that the largest economy on the planet is something of a castle built on a flimsy foundation. The Fed and the government are quickly becoming permanent economy agents aggressively trying to subdue financial shocks.
We, at Future Wealth, believe investors should be looking at yesterday, today, and tomorrow instead of following the market, which appears to be looking three to six months down the road. Just a word of caution to the market – it can be difficult to see the light at the end of the tunnel when it’s really dark.