By Tom Sedoric & Casey Snyder

These are chaotic and unchartered times. As unemployment rises and the GDP continues to settle into negative territory, the stock market is partying like its pre-crash 1920’s, or 1990’s, or mid-2000’s.

A recent cover story in Bloomberg Businessweek pondered “The Great Disconnect: Why do stocks keep going up?” Nobel Prize-winning columnist Paul Krugman noted in a recent New York Times column: “Stock markets never bear much relationship to the real economy, but these days they don’t seem to have much to do with reality in general.” Krugman chronicled the journey of Hertz from Chapter 11 bankruptcy due to the pandemic with seemingly worthless stock to a booming success in a matter of weeks as an example of the curious times we now inhabit.

If one did not know any better, one might think it was time for the stock market to book a session with an economic psychiatrist. Or, as colleague Ben Carson put it, “this is one of the strangest economic crises in history. Stocks continue to surge higher in the face of the worst economic data of our lifetime. Housing demand has already surpassed pre-crisis levels. And even though the first quarter was the most volatile period since the Great Depression, people opened new brokerage accounts at a record pace.” To paraphrase the legendary football coach Vince Lombardi, “what the heck is going on around here?”

The answer to that question is no one knows for sure. After the dramatic stock market fall in February and March as the catastrophe of the coronavirus epidemic became clear, the Federal Reserve began pumping hundreds of billions of dollars into the markets to keep them viable and stronger than they might actually have been. This has led to a redux of a familiar phrase in our professional circles, “Don’t fight the Fed.”

Predictably, the markets recovered and acted as if nothing was amiss. Tens of millions are unemployed while the country is still reeling and dealing with a deadly pandemic and no end in sight, yet stock prices continue to soar.  Human nature being what it is, people wanted in on the action like it was 1929 or 1999 – with many using their stimulus checks to do so. The data aggregator Envestnet Yodlee found that folks with a $35,000 to $75,000 income range ranked securities and stock trading as their third priority after savings and cash withdrawals. Personal savings have spiked as a result.

Is this the slope of rationality – to get in while the getting is good – that will ultimately lead to a pandemic bubble? We won’t know for quite some time, but this is where sound financial advice, doubling down on long-term planning, and coaching (emotional and psychological) comes into play. In times of distress, even professionals fall victim to what we call the siren songs of FOMO and TINA – “Fear of Missing Out” and “There is No Alternative”.

We currently have the perfect storm of emotional and financial chaos. When you combine the fault lines of 1918 (global pandemic) with 1933 (potential global depression), it is easy to see why buyers, sellers, and those who are holding back are all anxious. We help our clients understand that a rising market is not necessarily a smart market. For example, the market today is technically and structurally different than markets a decade or two ago and very different than the markets of 1929 -1933. The Fed intervention has added an artificial buoyancy and now there are too many companies which are overvalued. Along those lines, we also believe that the Dow Jones and S&P are top heavy, with sometimes as much as 20 percent of the wealth in just a handful of companies.

Many of the recovery programs – expanded unemployment assistance and direct grant and loan programs for small businesses – will end in the coming weeks and months. This is bound to have an immediate impact on consumer spending (reminder: consumer spending makes up as much as 70 percent of the real economy) and business recovery. When you add in the looming financial dam break for our local and state governments, uncertainty, anxiety and change may be with us for a while.

It’s more important now than in recent past that investors of all ages have realistic expectations. We understand the temptation for some to want to or go all-in and ride the wave, or the anxiety that leads others to want to sit on the sideline until the coast is clear. The reality is, both are examples of emotional reactions that deviate from a well-constructed plan meant to help provide guidance when emotions seek to hijack our rational brains. It’s also a great example of how it’s one thing to talk about living through a tumultuous period – it’s quite another to live through it.




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