What's Going on With the Stock Market?
Hi Taylor - The stock market has me so confused right now. One day it feels like the economy has recovered, then we’re in a freefall again. What’s your take on the drastic ups and downs? - Zeke
Hey Zeke - There are times in our lives when following the stock market too closely will only give us whiplash, and I think this is one of those times. The Dow can be a useful gauge for certain financial issues, but there are a few reasons you have to step away from the markets to get a clearer picture.
1. All sorts of people drive the market. Unfortunately, a lot of people make a lot of money based on short-term strategies. That’s why we’ll see the market go nuts in either direction when it seems like not much in the economy has changed. A bump in oil prices can cause a surge even as jobs data tells us the economy is still hurting. The jumpy stock prices have a clear connection to the fact that we don’t know how or when this pandemic will end. Some days investors feel better about the outlook, other days a spike in coronavirus cases might have stocks selling like hotcakes.
2. Unemployment is still high. Even as places reopen and some jobs data ticks up, we can’t lose sight of the jobs lost and the businesses operating at half capacity. There was a lot of talk about a V-shaped recovery, but as long as people are afraid of getting sick and companies aren’t fully staffed, it seems a little naive to be that optimistic. The Dow and the S&P will have good and bad days as we navigate this crisis, but we have to look past the trading days and study the actual economic data. When you do that, you see that we’re clearly not out of the woods and we can expect rocky financial times to continue.
3. Good investments await. Unlike with the housing crisis, our economy is on hold because all of our lives have come to a bizarre standstill. We aren’t watching a particular sector collapse, so the recovery should be a little cleaner (when it starts in earnest). This pandemic has brought a lot of things into focus for all of us, and we’ll see lasting changes as a result. If you think about the products and services that have been important to you over the last three months, that could definitely inform your investing strategy.
Don’t judge a book by its cover and don’t judge an economy by its market fluctuations. There are tough days ahead, but there’s no need to overreact and panic when your IRA takes a plunge. Stay safe out there!