It is not often that the stock market becomes decoupled with corporate earnings and economic indicators. In many ways, economic indicators and corporate earnings drive stock market movements. But, in the era of social distancing when the whole world has been turned upside down, it is only fitting that the stock market has simply decoupled itself and gone off on its own path. The divergence is particularly notable when you consider the economic and fundamental differences between now and and the beginning of the year. The table below summarizes the striking disparity between the stock market and the economic indicators and corporate earnings.

Future Wealth’s View

There are only two views to this market – 1. This is nuts. 2. Drink the Kool-Aid and expect the good times will continue to roll. Our view is that when the market historically becomes this detached from the underlying fundamentals, reversions tend to happen fairly quickly. Part of concern centers around that fact, in a healthy rally, there broad participation of all the stocks in the S&P 500. The current rally is a very narrow one, only involving 2% of the stocks in the S&P. A concentrated rally like this one where the top 5 stocks – Apple, Microsoft, Amazon, Alphabet and Facebook have driven the market higher is reminiscent of 2000, when Microsoft, GE, Intel, Walmart and Cisco drove up the index to its highest levels. And everyone knows that movie had a bad ending.

The reality is that the global economy is deep in recession, thousands have lost their jobs and there are many more to follow, hundreds of people are dying and there are many more to come. This is simply not the time to rejoice and take big risks – be it with our lives or with our investments.