The spring of 2020 brought on many challenges that we were not prepared for. One of the minor challenges we faced was not being able to get a haircut. I feel like there was a social acceptance of having shaggy hair over the past few months since all barbershops and salons were temporarily closed for business. My hair was the longest it has ever been and I was very thankful to get it back to a “normal” length.
Just as people cared less about their hair length over the past few months, the stock market does not seem to be very worried about current corporate profits and earnings. Since March 23rd, the stock market (as measured by the S&P 500 index) has moved higher without any substantial pullback.
How can the stock market rise while the economy remains partially shut down and unemployment is high? We can think of a few reasons:
- State and local economies are gradually reopening and the "greens shoots" of economic growth are appearing. People are anxious to get back to work.
- There is a growing consensus that the virus was not nearly as deadly as initially advertised.
- Low interest rates are helpful and lower costs to businesses and the consumer.
- Energy prices look to be rising and will hopefully stabilize to help the oil and gas industry.
- The Federal Reserve (Fed) has dramatically increased the money supply. As the old saying goes, “don’t fight the Fed.”
- The stock market pays more attention to anticipated future corporate earnings.
We do not believe that this will continue forever. As we look back at history, there has only been one other time in the past 70 years where the stock market had a 30%+ correction and then had a significant upward recovery. Most experts continue to forecast a “new normal” type of market activity with continued low interest rates and heightened volatility for a duration of time.
We continue to remain optomistic about the stock market and the economy over the intermediate term (2 to 5 years) and also the long term (5+ years). With that being said, we think one should expect the short term (less than 2 years) to have continued volatility.
About The Author
Matt Price serves as a Partner and Senior Vice President for The Price Group of Steward Partners. He resides in Houston with his wife, Emily, their two daughters and the family golden retriever. Matt studied at the University of Pennsylvania – Wharton School of Business for his Certified Investment Management Analyst (CIMA®) designation after receiving his undergraduate degree from the University of Tennessee - Knoxville. Over the past 9 years, Matt has helped families make high quality, common sense decisions regarding their wealth and their legacy. Matt firmly believes that everyone needs a wealth coach!
This market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.