Marc Cuniberti: The markets look ahead
Although many people assume the stock markets will react the actual day of an event, in actuality the markets are said to look ahead up to six months or more.
The COVID-19 event has been a good example of how markets anticipate things way of ahead of time.
The first three weeks of March witnessed a brutal sell off in the markets. The Dow Jones Industrial Average (DOW/DJIA) dropping about 38% from an all-time high of 29,500 and change in a mere 21 days or so to the low 18,000s.
From then on, the indexes turned up and plowed almost relentlessly higher, despite the fact that the world was just in the beginning stages of this now eight-month long event — and it’s not over yet.
That being said, what was it that persuaded investors to continually buy stocks from that third week in March, driving the Dow close to its previous high in the months that followed?
Even without a definitive end to the COVID-19 event, investors bought up stocks in this almost unbelievable and monumental rally.
Keeping in mind the event is still not over and no one can say when it will end, the market’s rebound is indeed perplexing to many investors. In reality, however, the snap back may have been anticipated. Investors may have been simply assuming the inevitable: the virus will end at some point.
Whether a vaccine is found or COVID simply exhausts itself through mutation or herd immunity, it will end.
At that point, the pent up demand from shut-in and stir crazy consumers will likely then pour out into the economy in rapid fashion, causing a similar yet surprising explosion in demand. This may translate to rapid bottom line growth and profits to the businesses that survived the event.
Wall Street loves its comparisons, and the rise in sales, compared to an anemic COVID shutdown economy, will no doubt set some records. This is what Wall Street has visualized since the shutdowns began, and is likely the reason the March sell off panic quickly turned into a buying frenzy. Once the panic subsided, Wall Street looked ahead to the recovery.
With the election here, another spot of weakness hit the markets in recent months, with bouts of wicked sell-offs followed by rebounds.
The weeks leading up to election day may have been especially damaging to portfolio balances. This could lead, however, to another example of the markets looking ahead further than occurrence of a specific event happening on a specific day like election day.
I am of the opinion that the markets latest hissy fit was not so much concern about who will be elected, but the uncertainty of the event itself. Wall Street has pretty much prepared itself for the election of either candidate, knowing it will be either one or the other, and unlike a Bernie Sanders White House, which the markets did fear, a Biden presidency no longer scares Wall Street much.
After all, the “talk” that is rumored to take place when a new President is sworn in covers nuclear footballs, dead alien invasions, secret bunkers and other clandestine and lurid facts that the public best not be made aware of. Among the discussions will also be what can and cannot be done when it comes to the big money centers of the world, put forth in way that may be much more than mere suggestion.
My conjecture of course.
I predict the current markets nervousness may be like the Gulf War stock markets of Operation Desert Storm. The markets feared the coming war action and sold off in the days and weeks preceding it, but when the shooting actually started, the markets took off, as the uncertainty of war gave way to the certainty of it.
Opinions expressed here are author’s alone, are opinion only, and not those of any bank, investment advisory firm or news media company. For a full list of the services Marc Cuniberti provides, please contact him directly. California Insurance License #0L34249. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. 530-559-1214
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