If we had to explain the stock market in one word, it would be resilience. Every selloff we’ve recently seen (including March), we’ve watched equities recoil back into shape leaving sellers baffled. With the market seeming so highly valued, any bad news sensationalized by the media creates a retail investor selling frenzy. Usually an overreaction. You really can’t blame them, can you? They want to protect their nest egg like everybody else; but it’s a move based on emotion, not logic. That is one of the many reasons to seek quality financial advice. The right portfolio manager will make tactical moves; not emotional ones. He/she would understand the economy has both headwinds and tailwinds, and position portfolios accordingly.
We have low interest rates, record stimulus, increasing productivity, vaccines rolling out, a major infrastructure package, a widening yield curve and higher GDP estimates. All these “tailwinds” combined (and many more) keep the stock market advancing to new highs. At DDIMG, we believe the stock market is efficient – It’s a discounting mechanism that prices in anticipated economic conditions based on current factors. It's not really concerned with the now, it's concerned with the future, and it prices itself accordingly. Sure, things could happen now that would change the outlook; and when/if that happens, we either see a stock market correction or rally. Judging by the recent rally, this market clearly sees a cheese at the end of the tunnel. Better yet, a charcuterie board.
We also have headwinds; a record deficit, high government spending, an overvalued dollar, social unrest, paranoid investors and not mention record cases of COVID-19. Any of these could come to fruition at any time and the market would probably correct - but every correction/selloff in history has been followed by another rip-roaring bull market. Maybe not as much of a recoil market as we have now, but the market does eventually advance to new highs. Obviously, this doesn’t mean with 100% certainty this will continue to be the case, but it does provide a pattern. Past performance doesn’t indicate future performance, but it does indicate ability. Ability for the country, economy, and consumers to bounce back, fight and adapt because nobody wants a bad economy. Everybody wants better days, and this is a fundamental concept of America, persistence.
Persistence is the reason we are sitting here today, it’s the reason so many investors retired well with the resources to do so. Persistence is getting us through this terrible pandemic, and it will get us through whatever the future brings. Persistence brings resilience, and investors who understand this concept should continue to prosper.
