Guest News Brief by Kip Hansen — 6 August 2020
Stock markets took an initial heavy hit back in March when the governments of the world issued edicts shutting down the economies of entire nations. Investors were scared silly. On March 9, 2020, this headline appeared in The New York Times Business section:
Wall Street Plunges in Worst Drop Since 2008
Oil prices crashed and bond yields tumbled. The S&P 500 had its worst day in more than a decade.
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The United States has weathered almost six months of Covid [madness] since then. How have investors fared?
Here I speak of investors as specifically opposed to stock market gamblers and speculators. Investors buy shares – partial ownership — in existing companies in order to take advantage of their future prosperity. By being partial owners, they normally receive a share of the company’s profits as dividends and as the company expands and grows, their personal share of the company grows in value. The value of a company is subjective and depends on myriad factors often turning on the concept of public confidence not only the specific company but in its industry and in the economy in general.
Market gamblers and speculators do something quite different. They buy shares in companies in hopes of making a profit on the small, short-term fluctuations in the daily prices of those stocks. The old adage: Buy Low, Sell High – but do it quick. In modern stock markets, there are all kinds of speculative moves that produce profits for these people, but the most salient fact is that they are gambling that a stock or the markets will move in the direction of their bet. When they have guessed right, they profit. If they guess wrong, they lose. These gamblers are often called Day Traders and, as knowledgeable and savvy as many are, like professional poker players, it is a mistake to consider them as anything else.
It is pertinent to point out the “The Stock Markets” are not “The Economy” – while they are generally related and inter-connected, it is a mistake to conflate the two. The U.S. economy, by many measures, in in rough shape, with government-mandated unemployment running very high and many of our smallest businesses having been forced to be closed by government orders related to Covid.
However, the aging U.S. population – its retirees – depend on pension funds and private investments as their main sources of income, along with whatever Social Security income for which they have qualified. Pension funds depend heavily on investments in the stock markets. So, our retired citizens, such as myself, are somewhat at the mercy of the markets.
How have the markets fared for investors?
Have investors been driven to penury by the reaction of the markets to Covid? by the downturn in the economy brought about by government Covid-mandates?
Investors are doing very well, thank you for asking.
Let’s look at the numbers:
Note: All of these charts are for the last 5 years, with the monthly values – the last value is close of market 5 August 2020. Remember: Investors are not bothered by the tiny (or big) day-to-day jitters – they have invested for the mid- and long-term.
The Dow is not at an all-time high – but very near. Despite Covid [Madness] investors are up even on a one-year basis – the Dow is higher than this time last year. Over a five-year period, from August 2015, the market as a whole is up from 16,500 to 27,200 – up 65%. That is a net gain of 13% per year which is a very good return on investment.
The S&P 500 is at an all-time high. In August 2015, it was 1,972, today it finished at 3,327. Over this last five years it has gained 69%, about 13.8% per year, a bit better than the Dow Jones.
The NASDAQ is the big winner. It has risen from 4,776 to 10,998 — a whopping 130% over five years. That’s a gain of 26% per year.
The idea that the Worldwide Covid Lockdown has crashed U.S. stock markets is simply not true. There has been no stockmarket crash in response to the pandemic which has barely affected U.S. stock markets, after the initial shock. Quite to the contrary, two out of three are at all-time highs, and all three major U.S. stock markets have been supplying terrific return-on-investment on price-value alone (even without considering dividends). Your well-diversified pension fund and your well-diversified personal portfolio is safe, healthy and doing well at the moment.
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It never hurts to have a little good news. Good financial news is particularly nice when so many depend on their savings and investments.
Reader’s who wish to insist that things are worse-than-we-thought are free to do so, and I won’t argue. The crimes that have been committed against small and family-owned businesses by our political leaders who have been consummed by Covid-Madness are simply beyond anything I would have ever imagined, even as a young 1960s university antiwar revolutionary. I would have been less shocked to see concentration camps for radical dissidents.
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