There are so many things in life that frustrate me, make me pull out my gray hair and curse the star I was born under. When 5 people push 5 different buttons in the elevator I legit enter a mini depression. When someone ahead of me in a supermarket pulls out a check to pay for their $12.50 in oranges and chips I almost want to pay their bill to avoid the anger. When I roll into a gas station and have to press 48 buttons and enter my social security number before being able to pump gas in 10 degrees, well, yea, Michael is on tilt. You know what seems to be frustrating the most amount of people on Finance Twitter and in the market right now? The fact that it won’t sell off (even Cramer!!!) Let’s dive into that for second…
The Coronavirus outbreak has thrown all sorts of worries into Global growth and economic indicators. China, for all intents and purposes, is running in an idle state. Apple, which has huge exposure to China from both a supply and demand perspective, warned that they likely won’t meet previous guidance. People are screaming in my timeline “how can the market not be selling off on this news, this seems really bad?” Here’s my take: 1) Americans tend not to worry about something until it’s on their shores. For now, the worst of this outbreak is far away and that hasn’t impacted the average consumer. 2) Stimulus. If there is a maximum amount of stimulus possible (good blog here) the market thinks we are likely to see it from China. It’s a centrally planned economy, they could literally backstop everything (there’s already talk they will bail out all their airlines). 3) Previous pandemics have all shown a similar track. Weakness into peak infections then a slow steady climb out of it. Did you know the Spanish Flu of 1918 that killed 50mm people only knocked 10% off the DJIA?
There’s also hand wringing over the 10-year yield, the election, and Boeing. If the market keeps grinding higher why are yields so stubbornly low (1.55%)? Should the market be worried about a particular candidate winning? If one of our great companies is struggling to get back on track what does that mean for not only the manufacturing sector but for GDP growth? All interesting questions but as of now have had zero impact on the rally.
Our investment strategy team does not believe this pandemic will end the bull market but they, like me, acknowledge that we still don’t know the extent of the damage wrought (both economically and in lives lost). That being said, if you are a long-term investor you’re probably thinking that this is 1-2 quarters of weakness but not a game changer for a decade old bull market. While this event represents “True Risk” a durable financial plan is supposed to be built to handle all kinds of twists and turns in the road.
So yes, people are frustrated the market isn’t selling off but you know what? That’s what markets do, they want to frustrate the most amount of people they can at any given time. If everyone is leaning Bearish, waiting for a pandemic related selloff, a rally is like a slow internet connection, SUPREMELY frustrating. A selloff will happen but only when no one expects it to. Finally, and I can’t emphasize this enough, don’t sleep on whatever the Chinese have planned to stimulate their economy after this event fades, it is likely to be unprecedented. Pandemics that threaten economic collapse also threaten political stability, they can ill afford either.
- Really good blog post here on Loss Aversion: "Fear rarely considers the long-term; it is usually fixated on the here and now and how it could all go badly wrong in a hurry."
- Meb Faber keeps it real. Great blog post to think about what your expectations should look like in the market: “Most people invest in stocks. They believe that, given enough time and compounding, saving and investing results in massive wealth. Fortunately, this is true. But let’s quickly ruin this good news with the sobering news…Most people are woefully unprepared for the roller coaster ride to get to the pot of gold at the end of the rainbow”
- When you were born trumps almost everything else when it comes to investing success. Painful but true: “if you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year.”
- It’s winter, eat some carbs. Check out this amazing Buffalo Chicken pasta bake
- I’m not sure I wanna know what any of these smell like?
- American living standards have never been better. I’m sure you won’t hear much about this though, optimism doesn’t sell.
- I’m in Oregon right now, it really is this beautiful !
There’s a guy who does Youtube videos called “Midwest guy” and I absolutely love it, he kills me. I can’t believe I haven’t posted his take on Disney yet, check it out here! (his NYC and LA one’s are awesome too)
Have a good night.