Why is the stock market doing so well?
On Sunday, August 9, 2020,TSA screened 830,000 passengers at US airports compared to 90,510 on April 12, 2020. (7) The bad news is that this is down from 2.6 million passengers one year ago. The good news is that this is the highest number since COVID in March. (1)
The July jobs report was encouraging as the economy added 1.9 M jobs. This marks the third consecutive month of job growth as unemployment dropped to 10.2%. This is good news. (2,3, 4) More good news is that we added 2.7M jobs in May and another 4.8M in June. (5) Conclusion, more people are going back to work. May and June were great for job growth while July was merely good.
We still have a huge hole to climb out of. Unemployment has risen from 3.5% pre-COVID, February 2020 to the high of 14.7% in April to the current 10.2%. (10)
With more than 62% of S&P 500® companies reporting second quarter (Q2)results, 82% have exceeded earnings per share expectations, and about 68% have beaten revenue expectations. (6)
Much of short-term investment results are about expectations. When COVID struck, markets expected massive job loss and dramatic reduction of company profits so as a result many shares were sold in March resulting in dramatic reduction to indexes like the S&P 500®. 30M people filed for unemployment, the economy was shut down and companies were projecting much lower profits. (10, 11). Expectations were bad, awful, horrible.
The US economy shrank by an annualized 32.9 percent in the second quarter of 2020, compared to forecasts of a 34.1 percent plunge. (8)
When the news says 2.7M jobs are added in May,4.8M in June and 1.9M more jobs in July, that is all good news. If nine times more people are flying now than inApril, that is good news. If82% of companies are making more profit than they expected to make, that is more good news. If the economy shrunk by 32% instead of the expected 34%, well, that is good news also.
All of this good news is why the S&P 500®closed at 2,237 on March 23 (the current year low to date) and then to close at 3,333 on August 11. (9)
So, Will the Stock Market Keep Going Up?
Historically, markets have always gone up. Gains have in the past always been permanent while losses temporary. (9) However, this requires a steady hand, strong heart, and time.
In shorter time frames, it is unknowable what markets will do. This time is indeed different. With the exception of the Spanish Flu early in the 20th Century, we have no experience with a true global pandemic. If we get a vaccine in a timely manner; if enough of it can be manufactured; and if people actually take the vaccine; and if we can return to a “normal” life, then the stock market may continue on its current bull (up) run.
That is a lot of “ifs”. But “if” any amount of uncertainty returns and provides distraction from the current “good news,” markets will return to the normal volatility. Note, I said that volatility is normal. Never forget that.
Wrapping It Up
If you think you may need or want cash from your investments for spending in the next year or so, talk to your advisor about perhaps selling enough investments now to cover the near-term need.Focus on your “Big Picture.” How long is your financial plan?Six months? A year? Thirty years? Yes, plan your cash flow a year or two or even years ahead. But your financial plan is for the rest of your life or maybe even the lifetime of your children and grandchildren.
Do not make emotional decisions about money. People who made an emotional decision to sell their stocks or stock mutual funds in late March are far worse off today than if they merely decided to do nothing.
Yes, hind-sight is 20-20. Historically, look at this chart in footnote #9 and let’s talk about what the stock market has always done in the past. (9) Call me and we can talk.
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