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Why Does the Market Seem Resilient?

Let’s get real. The NYSE and especially the Dow are not the leading nor lagging indicator of economic conditions. They’re a gambling site. Yes, there are scientific bases for some indices and indicators but…

It’s all about human behavior and machine learning.

Since a little less than a century ago the press and pundits have watched the stock market as some magic place where the bulk of wealth resides. That’s not what it is. If you listen to the wisest of investors – Warren Buffett, for instance – they’ll tell you that the market is a place to park money if you’ve got a strong stomach for loss. In fact Berkshire Hathaway is looking at a $50 billion loss currently because of stock holdings the chairman and others failed to move on.

Real value comes in individualized decisions that offer reward for elevated knowledge and a sound strategy. I am not a holder of a securities license so this is not anything for you to act upon.

But this is another example of a question I get asked when doing economic forecasts and advising clients on strategy in a wide cross section of fields. Doctors, farmers, financial service board members, construction executives, and many more have been at it recently.

Here’s what I think are more telling indicators of our national and regional economies. Right now our economy is reeling. At least a 4%-plus drop in GDP in the first quarter. A much bigger one in the 2nd quarter. J.P. Morgan believes the 2nd quarter could be down 40%. A recession. No need to wait for the NBER to announce it in another 6 months. It’s happened.

Unemployment? Massive. Depression-Era massive. Probably 20% at mid-year. Some recovery and return to jobs in the 4th quarter but still in the 15% range at year-end and double-digits through 2021.

This pain and blood-letting won’t be across the board. That’s another reason the market isn’t crashing. Some industries and companies are just made for this type of environment. Amazon, Google, Zoom, Cisco, Alphabet, Facebook, Apple, Microsoft, food retailers, certain pharmaceuticals are obvious beneficiaries. As I write this today Gilead Sciences is watching stock climb because of overly-preliminary trial results for Remdesivir. It’s promising but it’s early yet.

Losers in the pandemic. Travel. Tourism. Airlines. Movie theaters. Spectator sports. Short term rentals. Much of the “sharing economy.” But a lot of heavily-impacted fields will bounce back in a “new normal.” Not at the go-go levels we were in during a massively (and I think artificially) stimulated economy. But if you think about all of the things that people are NOT going to change you can see those glimmers in the tunnel.

Are there good signs from the market’s resilience? Investors at this point believe that year end and 2021 will see a rally. That’s positive. But attitudes can shift in a few days.

Planning in this environment? No different in some ways. Best practices – think beyond the downturn. Come to grips with reality. Weather the crisis. Hold onto your most valuable assets including key staff. Take advantage of flexibility, negotiation, consolidation in some fields. Hunker down in some situations. Patiently wait for the upsides in others. There are many robuts strategies.

Photo by Rick Tap on Unsplash
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