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A random internal dialogue on the markets

Markets Image

I will be the first to tell you that I am no expert. I will also be the first to tell you I have no idea what is happening in the markets these days. I am a somewhat cautious person and so I am continuing to wait for the market to fall. But the fall never comes. I don’t get it.

This latest jump today (Monday, July 13, 2020) comes despite coronavirus infections in the United States reaching a daily record high of close to 60,000 cases. Yikes! But one wakes up today and the markets are up almost 2%. Wow! I know the market performance is based on future returns but how far in the future are these investors looking?

There has to be some rationality to it because there are definitely smart people behind these investments. And, as has been said before – and can’t be said enough – the market is not the economy. So what are they seeing that I am not grasping? Profitability for sure. The economy is down and people are, very unfortunately, hurting a lot. So consumers aren’t spending. But that isn’t the only way to be profitable. You cut costs. You furlough workers, you close stores, offices, cut whatever you can – coffee, paper, Christmas parties, etc. Maybe the cost savings is what is doing it.

But it can’t possibly be enough to balance off a 20% drop in spending or whatever it is. Governments have gotten in there and dumped A LOT of money into the economy and that is making its way through (maybe not to those who really need it but not sure the markets care about that too much, just as long as it is there). So that, combined with cuts, offsets the amount of money that has fallen out of the economy? It would seem so.

But what will happen when that money goes away and the virus is still here and people are scared to go outside or, if they do they get sick? Maybe that won’t happen and that is what investors are banking on. Or maybe they are seeing the cuts will stay and that will more than compensate for the loss of business that will eventually bounce back? Or maybe this rise is being pushed by the companies (see consumer staples, tech companies) that have maintained or even grown through this pandemic. Like I said, I really have no idea how it is happening. I will continue to watch with interest.

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