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  • Chip Barnett

Why is the stock market up when it feels so awful outside?

Race relations are raw, peaceful protests, riots and even looting seem everywhere, and states and people are ready to open for business even if the Corona virus is very much still around. The stock market just keeps going up. Why?

Let’s amend that: why isn’t the stock market falling?

Many of us ask, what is there to be optimistic about right now? You want me to invest in the world becoming a better place? No way. Humanity is the worst right now. I’m staying in cash.

Those dollars take a lot of convincing to come out of hibernation. And likely, when they do, it’s after the market has moved significantly higher already, for finally fearing/admitting they’re missed out. "Get me in - I don’t care what the price is." This kind of skepticism can fuel a bull market for a long time - years. This is a big reason, for now, why I don't think we sell here.

There’s us, who were taken aback at the speed of the market reaction to Covid, both on the downside and the recovery, and our patience paid off. We’re not adding to the buying or selling pressure.

I just read that this is the greatest 50 day rally in the history of the S&P 500. What new buyers make stocks go up every day?

I have two answers, which are 100% accurate, and probably won’t feel satisfactory.

One, the amount of new, global fiscal (government) and monetary (central banking) stimulus is record setting. "Printing money" is not a wrong intrepretation here. Central banks have lowered rates to zero, so companies can borrow in order to stay afloat, and investors literally don’t get paid to own bonds. This is the central banks’ way of telling you to go buy stuff, and invest in riskier asset classes, like stocks. The fiscal passing money out - both making its way to where it’s badly needed, for rent and curbside grocery pickup, as well as to companies that don’t need it - is all new cash in the system. (Don’t get me started on how all this gets paid back). That cash gets spent on stuff. Covid tests. Take out food. NOT firing employees. Masks. Honey-do projects around the house with your free time now that you’re working from home. That money, that wasn’t there before, ripples throughout the system, over time. Some of it makes its way via investors to the stock market. Some of it makes for better business conditions of publicly traded companies, who announce that things aren't as bad.

Two, and this is the unsatisfactory part, is perception. I’m not including any charts in this post, because this is so influential and so hand-wavy. The perception is that things are going to be better in a few months than they are today. You might disagree with it, or you might think the whole Covid thing is some conspiracy. Perception can change this afternoon, and as a result stocks have a terrible June. It's fickle.

There's data, and there's "feeling." Sometimes they contradict one another. Right now, and I hate saying “we’ll see,” the data and the perception are that things are getting better.

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