Ep. 39: The Stock Market & The Economy

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Welcome back to Money Matters where I help guide you in becoming a better and more confident investor. In 2020 there’s a lot to unpack, and it seems the deeper we go into this year the more that’s added to the list. And with all, that’s happened and continued to happen the stock markets seem to charge on from its lows on March 23rd of this very year. This has lead my team and I to have a lot of conversations surrounding the stock market whether it’s accurately reflecting reality which is exactly what I want to get into in this video. 

The daily routine has changed drastically from most Americans than a year ago. I being no exception as I work from home more often than in recent years. With the pandemic affecting my personal life as well. Going out and being social has been cut down to none. My preferred entertainment choice – Live music – is nonexistent and unfortunately going to a venue and surrounding myself with like-minded individuals there to enjoy the same vibrations isn’t looking to happen anytime soon. This of course being my view, the micro view – is easily translated to the macro view – and in real-time affecting companies and the economic outlook.

It doesn’t come as a surprise that with the shift in how companies are conducting their business endeavors some are going to prosper while others, who rely more on physical foot-traffic are going to suffer. From its record high on February 19, 2020, the S&P 500 index fell 33.79% in less than five weeks responding to the media outlets reporting on the virus. But then we saw a swift recovery from its low on March 23rd, with the S&P jumping 17.57% in just three trading sessions, one of the fastest recoveries this county has ever seen bring us to new record highs. Which leaves the general public and investors puzzled by why this is. With many stating the stock market becoming more and more out of touch with reality and what’s going on in the economy. Is this the case?

The stock market is a forward-looking indicator. Which makes sense. As people invest today hoping their money increases in the future. Which is another way of saying they’re optimistic, otherwise why would they invest?

One reason why I love watching capital markets is that in its true nature, the stock markets are a mechanism for aggregating opinions from millions of investors around the world reflecting what a secondary market is – prices investors are willing to accept when buying or selling fractional ownership of a company. I like what Weston Wellington from Dimensional Funds states “in some sense, the stock market has always been divorced from reality, since its job is not to report today’s temperature but what investors think it will be next year and the year after that and the year after that and so on”

When you look at capital markets as a whole. Some companies are struggling. Retail and hospitality are two industries that fall into the category for obvious reasons. Then you have a handful who are prospering, which is clearly why the markets are reflecting the new record highs. This pandemic has opened up new opportunities for companies to capitalize on in-turn reflecting new information in stock prices.

No one could have predicted what has happened in the markets this year. And if they did, then they’re simply lucky. But those out there, like myself, who are investors and who will continue to invest who are taking in new information as it comes at us, let’s make sure to focus on what hasn’t changed as well.

Know your risk tolerance, as in how much you can handle when being an investor so you’re not setting yourself up for a rollercoaster ride of emotions. We know that markets are forward-looking so the daily market activities as a whole are going to reflect the general outlook for investors going forward. So make sure you’re cognizant of history, and how markets have reacted to similar events in the past. The golden rule of investing is always going to continue to apply – that being your investments are diversified amongst different companies and asset classes, to put your portfolio in a better position to capture market returns wherever that may be in that given timeframe. And then take inventory of your surroundings and find unbiased news sources so that you’re an informed citizen and ultimately investor and then you can ask yourself how you feel the stock market is reacting to the overall economic conditions then you’ll be better prepared when you’re talking with you Financial Advisor when discussing your portfolio and while you’re taking certain actions with your investments and ultimately your financial future.

Thank you for tuning in to this week’s episode of Money Matters and giving your finances the attention that they deserve! See you next time.