Defying Gravity – April 29, 2020
The disconnect between Main Street and Wall Street is enormous.
The Dept of Labor reported 26 million first-time claims for unemployment insurance over 5 weeks. The economy is in a free fall. Yet, the broad-based S&P 500 Index2 is down a modest 10.9% year-to-date (as of Apr 27, St. Louis Fed).
The stock market is defying gravity. Why? Here are some thoughts.
1. Measures taken by the Federal Reserve to support the economy and set the stage for a more robust recovery have far outpaced what the Fed did in 2008.
2. Fiscal stimulus, which includes support to businesses and the unemployed, has totaled over $2.5 trillion. Remember the $787 billion in 2009?
3. Investors are looking to 2021. In 2019, S&P 500 profits hit a record $163/share (Refinitiv).
While the range of uncertainty is very high and projections are subject to change, as of Apr 27 profits are forecast to fall to $135 in 2020 and rise to $170 in 2021. Much will depend on how the economic outlook unfolds.
4. There are signs the virus is peaking or has peaked. Investors are cautiously eyeing states that are set to slowly reopen their economies.
Investor’s corner
Shorter term, the rally has been encouraging, but we don’t have a crystal ball into future activity. No one does.
What we can promote is a solid, well-defined financial plan that puts you on the path towards your financial goals.
Created 2020-04-29 14:14:55