Stocks Rally on Economic Hardships
The coronavirus and the stock market are racing to post big numbers. The virus has put 33 million out of work and sadly killed 75,000 of the 1,290,000 it’s infected in the United States, far more than Vietnam and 9/11 combined. The US stock markets, however, are on track to hit all-time highs.
The sum of American business today is being valued at around a quarter more than it was a month ago, according to rises on the Dow Jones index. But weirdly, almost no investors – young, old, rich or poor – had these numbers on their bingo cards a month ago.
When the market rallies, it’s usually impossible to escape irrational exuberance. The bulls control the narrative. This has changed, and now everyone’s head is in a spin. It seems bears control the narrative, but not the markets. There are some calling the recent gains fake, cussing out “irrational markets” for ignoring current realities, but it can’t be so…
There’s no such thing as a rational or irrational market. You can’t keep up binary rights and wrongs in a financial mosh-pit of opinion and prediction, which is exactly what the stock markets are. It’s about who can see the farthest, clearest into a hazy future.
There’s a paradoxical argument that stock markets are going up despite the global recession due to reasons of economic law. “Interest rates are like gravity to stock prices,” Warren Buffett likes to say. If they’re low (like right now), bonds are less attractive. The natural substitute for bonds are stocks, so are we witnessing a fixed income migration?
It’s also helped for the Federal Reserve to pile on other forms of stimulus, such as quantitative easing and small business loan relief. We will never know for sure why markets do what they do, but they have a knack for working themselves out in the end. We should all do well as business owners for life!