The Stock Market Is Not The Economy
If you are surprised by the divergence between the stock market and the real economy then this video is for you.
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We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
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We have an interesting question from a subscriber that says they are very confused by the current state of affairs in the markets, we’ve just gone through the fastest and most severe global economic downturn in decades and stock markets are trading like nothing is wrong, what am I missing?
Firstly I want to tell you that you are not alone in feeling this way, when things go south like it did it is interesting to see the market trade at all time highs just a few short weeks after the downturn, now even though it is interesting, if you do some additional research you’ll find that it’s actually not surprising, and let me explain why.
There is a very common statement often made by market participants that says, “The Stock Market Is Not The Economy”, and this is something very important to keep in mind. You see, in every market, whether we are in a recession or depression or expansion, there will always be perma-bears and perma-bulls. The perma-bears are the ones that are calling for everyone to pack their bags and go home because the world as we know it is coming to and end, and then you also get the perma-bulls that says just buy equities coz they only go up.
Now, there is dangers to being either of these two traders, but history actually sides with the optimists believe it or not. Let’s take a look at a historical chart of the S&P500 going back to the 1920’s, now just for reference this chart is available on Macrotrends.net and it is in log scale and actually let’s see this inflation adjusted to get a better sense of the moves.
In fact, we can even view it by recession and that would be really informative to see actually. Everybody is looking at this bounce saying it doesn’t make any sense, look at the state of the economy and look at the stock market, this isn’t possible, but let’s take a look at past examples.
Everybody is stuck looking at 2007 and 1929, and then yes you would think this doesn’t make sense, but let’s look at a few of the other recessions and you’ll see what I mean.
Yes, when we go through recessions there is often times anything from a 20% to 30% drop in equities, as we’ve had this year. But the bounce back in markets can take anything from years to months to even a couple of weeks, as we’ve seen from past examples.
Remember that the market is forward-looking, which is why they look past the current and look towards what is coming. Now, there is still a lot of pain in the economy, there is still a lot that can and probably will go wrong, economies have been propped up by central bank and government intervention, and if you read some articles on the type of problems facing companies in the months ahead there will be a lot of issues surrounding zombie companies as credit and liquidity issues turn to solvency issues.
And on that note, is it possible that this moves lower again in line with those things? Yes, of course it’s possible, but expect buyers to step in with any dips as they have with any other recession.
Knowing that in the end the overall trend is up will help you to put a lot of things into perspective. There are of course those perma-bears calling for the biggest de-leveraging the world has ever seen, by looking at the amount of leverage in the system and the amount of debt for governments and companies and individuals, by looking at demographics, there are reasons for so called perma-bears to fear the mother of all corrections to come into play.
BUT, and this is a big but, they’ve been warning about that for a few decades now, some of the most influential investors today without naming names called the 1990 recession a possible depression, and in hindsight, it wasn’t.
Now the point I’m trying to make by saying all of this is that the stock market, clearly, is not the economy, even when the economy is facing massive headwinds stock markets can still go up, by quite a lot actually.
So, again, all this doesn’t mean that the correction some people fear isn’t coming, it just means that we should always remember the major macro trend, and yes if the “everything” bubble eventually pops I don’t even want to imagine what that type of de-leveraging will look like, it will probably be big enough to cause such devastating geopolitical issues that leads to war, it’s possible, but right now not probable given everything we know right now and given history as a guide.
So, hope that helps with your question, any others please don’t hesitate to let us know.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
-----
We have an interesting question from a subscriber that says they are very confused by the current state of affairs in the markets, we’ve just gone through the fastest and most severe global economic downturn in decades and stock markets are trading like nothing is wrong, what am I missing?
Firstly I want to tell you that you are not alone in feeling this way, when things go south like it did it is interesting to see the market trade at all time highs just a few short weeks after the downturn, now even though it is interesting, if you do some additional research you’ll find that it’s actually not surprising, and let me explain why.
There is a very common statement often made by market participants that says, “The Stock Market Is Not The Economy”, and this is something very important to keep in mind. You see, in every market, whether we are in a recession or depression or expansion, there will always be perma-bears and perma-bulls. The perma-bears are the ones that are calling for everyone to pack their bags and go home because the world as we know it is coming to and end, and then you also get the perma-bulls that says just buy equities coz they only go up.
Now, there is dangers to being either of these two traders, but history actually sides with the optimists believe it or not. Let’s take a look at a historical chart of the S&P500 going back to the 1920’s, now just for reference this chart is available on Macrotrends.net and it is in log scale and actually let’s see this inflation adjusted to get a better sense of the moves.
In fact, we can even view it by recession and that would be really informative to see actually. Everybody is looking at this bounce saying it doesn’t make any sense, look at the state of the economy and look at the stock market, this isn’t possible, but let’s take a look at past examples.
Everybody is stuck looking at 2007 and 1929, and then yes you would think this doesn’t make sense, but let’s look at a few of the other recessions and you’ll see what I mean.
Yes, when we go through recessions there is often times anything from a 20% to 30% drop in equities, as we’ve had this year. But the bounce back in markets can take anything from years to months to even a couple of weeks, as we’ve seen from past examples.
Remember that the market is forward-looking, which is why they look past the current and look towards what is coming. Now, there is still a lot of pain in the economy, there is still a lot that can and probably will go wrong, economies have been propped up by central bank and government intervention, and if you read some articles on the type of problems facing companies in the months ahead there will be a lot of issues surrounding zombie companies as credit and liquidity issues turn to solvency issues.
And on that note, is it possible that this moves lower again in line with those things? Yes, of course it’s possible, but expect buyers to step in with any dips as they have with any other recession.
Knowing that in the end the overall trend is up will help you to put a lot of things into perspective. There are of course those perma-bears calling for the biggest de-leveraging the world has ever seen, by looking at the amount of leverage in the system and the amount of debt for governments and companies and individuals, by looking at demographics, there are reasons for so called perma-bears to fear the mother of all corrections to come into play.
BUT, and this is a big but, they’ve been warning about that for a few decades now, some of the most influential investors today without naming names called the 1990 recession a possible depression, and in hindsight, it wasn’t.
Now the point I’m trying to make by saying all of this is that the stock market, clearly, is not the economy, even when the economy is facing massive headwinds stock markets can still go up, by quite a lot actually.
So, again, all this doesn’t mean that the correction some people fear isn’t coming, it just means that we should always remember the major macro trend, and yes if the “everything” bubble eventually pops I don’t even want to imagine what that type of de-leveraging will look like, it will probably be big enough to cause such devastating geopolitical issues that leads to war, it’s possible, but right now not probable given everything we know right now and given history as a guide.
So, hope that helps with your question, any others please don’t hesitate to let us know.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
