Weekly Market Commentary

June 22, 2020


The Markets

Could it be the upside surprises?

U.S. stock markets have marched higher despite a pandemic, an economic downturn, and social justice protests.

Here are some narratives that purport to explain recent market performance, including:

  • Quarantine boredom. Matt Levine of Bloomberg has postulated “…a lot of individual investors buy stocks mainly because it’s fun, and that the more fun stocks are, and the less fun everything else is, the more they’ll buy stocks. In a pandemic, when people can’t really leave their house and sports are canceled, there is a lot less fun to be had elsewhere…so people buy more stocks.”
  • Big, publiclytraded companies are safe. This theory suggests businesses hit hardest by the economic downturn often are not traded on stock exchanges. Technology executive Eric Schmidt wrote, “Gigantic corporations, which have deep pockets, fancy accountants, huge legal teams, and access to international financial markets, are also better equipped to weather shocks than your local hardware store or small manufacturing company.”
  • Don’t fight central banks. “The Fed is using its unlimited money-printing machine to single-handedly prop up the stock market.” The Fed is itself an important narrative but in reality, the Fed’s magic over the real economy is limited. But its statements clearly move markets, and it has lots of power as a storyteller.

Lisa Beilfuss of Barron’s offered another narrative. She reported:

“…upside economic surprises over the past two weeks – mortgage applications hit the highest level since 2008, retail sales rose at the fastest pace ever, and U.S. businesses added 2.5 million jobs in May instead of cutting an anticipated eight million, to name a few – are even better than they look and offer at least some proof that the stock-market rebound was driven by expectations for improving fundamentals…It’s about the magnitude of the surprises versus Wall Street’s expectations.”

These narratives all have some merit, and major U.S. stock indices moved higher last week.

What do you think?

In recent years, we’ve learned a lot about why investors do the things they do. For instance, we now know investors are not the omniscient, rational decision-makers economists believed them to be. Investors have built-in biases that sometimes cause them to make errors in thinking.

One of those biases is known as confirmation bias. Investors (and non-investors) have a tendency to seek data that reinforces their beliefs and ignore information that suggests they’re wrong.  Data gets published that supports diverse ideas about the direction of the economy and stock markets and most people follow the data that supports their point of view. I have witnessed this many times in my career and it’s a real thing. I have always made a point of being at national conferences on investing to hear as many points of view as possible to check my own thinking.

When data supports varied opinions, how can investors avoid mistakes? One of the best ways is to work with someone you trust and who has a clearly defined process to help you develop a plan to meet your financial goals.

 Focus On The Positive

“The happiest people don’t necessarily have the best of everything: they just make the best of everything they have.”


Best regards,

Bill Spalding