The bit disconnect: The coronavirus and stocks
In the first full week of April the bad news of the coronavirus and collapsing economy continued to dominate the news. In Massachusetts epidemiologists told us to prepare for an acceleration of cases and deaths.
Meanwhile, US stocks rose by about 10% that week. Go figure.
The reasons are complex.
On the one-hand there is still a lot we do not know about the virus. We do not know:
- Exactly how it spreads
- How contagious it is
- Who will get it
- How many people actually have it right now
- If you will even know you have it
- How effective social distancing and other protective measures are
- If people who’ve had it are immune after recovering
- When we’ll have an effective vaccine
Talk about a long list of uncertainties! And, we’ve been saying for a long time that the stock market hates uncertainty. So, why has it risen about 15% since the beginning of April?
Reasons stocks have risen despite the bad news:
- Social distancing and stay-at-home orders appear to be ‘flattening the curve’
- In some states and counties the number of new deaths may be peaking
- Although some hospitals are at their breakpoint in caring for virus patients, so far they have been able to keep going
- About 30 experimental vaccines and treatments are in development with several already in human trials
- The $2.2 trillion CARES Act is expected to head off a protracted economic depression
- Federal and state governments are starting to talk about easing stay-at-home orders so that Americans can get back to work
From the beginning we have expected stocks would rebound as the situation reaches a tipping point. While getting the timing right on that rebound is—in our opinion—a fool’s errand, it does seem a bit early given the long list of uncertainties.
It is because of this type of disconnect between the virus’s depths and rising stocks that we remain skeptical of this recent stock rally. It is also the reason that we believe that investors should remain committed to their long term investment plan. With stocks opening many trading days up only to end the day down by several percentage points, long term losses can be incurred by trying to time the market.
I can still remember many conversations with worried investors in the dark days of the Great Recession of 2008-9. It is often hardest to stay with an investment plan when bad news is everywhere. That is precisely when you need to stick to your plan.
It has been said that the sky is darkest just before dawn (It is true).
Hang in there. It will be worth it. And, we are still here with you to answer your questions.
Lyman H. Jackson
P.S. This week’s picture is of me working in my new home office, formerly the dining room.
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