Covid & the U.S. Stock Markets – Update


Guest News Brief by Kip Hansen  —  1 December 2020

In March of this year, 2020, U.S. markets took a tremendous hit as confidence in the ecomomy was badly shaken by predictions of millions of U.S. deaths. 

So, while it is true that stock markets took an initial heavy hit –  all things in the stock markets are relative.  Of course, there has been an “economic downturn” – the economy has been literally turned down by edict from national and state governments – millions have been put out of work as their employers have been ordered to stop doing business by the multitude of nations that have sacrificed their economies in the [misguided] belief that doing so will “save lives”. 

But the predictions  that the Worldwide Covid Lockdown would crash U.S. stock markets   simply turned out not to be true.

Here is the data, from Yahoo Finance, as of the close of trading in New York on 1 December 2020.

[You can see the full sized, near-real-time originals from this page  clicking on the three indexes at the top bring up individual pages with graphs.  You can select “Max” for the time period to see the versions of the  images used below  – kh ]

As we can see in each chart that there was a shock response to ordered lockdowns visible in each of the four indexes – but these sharp drops only took markets back down to the levels seem in late 2017 or early 2018 – two years of unconstrained gains were temporarily lost.  This most obvious on the chart of the Dow Jones. 

As of close of markets today (1600 hrs EST) all four major U.S. stock indexes are at All Time Highs.

There has been no stockmarket crash in response to the pandemic – on the contrary, the four major U.S. markets are at their highest levels ever seen. 

How can this be given that we know that the U.S. economy has taken a serious hit with lockdowns and business restrictions literally destroying some industries, such as the hospitality and travel sectors, and particluarly small and very small – Mom and Pop — businesses?

The simpliest explanation is that old saw: “The Markets are not the Economy.”  And that is so true.  But the markets do reflect the confidence that investors have in the future – and despite the pandemic and the disastrous misguided  governmental responses to it, investor confidence is extremely high and their optimism is driving market indexes to new heights.

What does this mean for you and me?  If you have a pension fund or personal well-diversified investments, you are doing very well as your pension fund prospers and your personal investments increase in value. 

Not all stocks are winners under present circumstances.  This chart is Carnival Cruise Lines – your  investment in CCL has not done well, despite the gains of the general markets.  Cruiseship lines have been slammed by the negative news surrounding the Diamond Princess debacle (and other Covid stricken cruiseliners) and have not recovered as yet.

Saavy investors spread their investments over a wide variety of industries and individual companies – following the mantra:  “Diversify, Diversify, Diverify”.  Thus their results mirror the major stock indexes.  And they have been winning, and winning, and winning. 

Do not listen to the Doomsayers!  Despite our current troubles, the future is bright and everything will work out. 

# # # # #

Author’s Comment:

Tell your kids . . . they are prone to listening to the wrong voices, the negative twittering mob.  Assure them that it will all work out in the end.  Honest.

Many of us “older citizens” have our life savings invested in various ways – some have pension funds, some have personal nest eggs – that depend on the health of the stock and bond markets.  And we derive most of our annual income from these sources.   If we have followed good investing advice – the basics of which have not changed in my lifetime — be it on our own or via our financal professionals – we have thankfully weathered the storm rather handily, despite ill-advised actions by our governments in response to the Covid pandemic.  

# # # # #

0 0 votes
Article Rating
115 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
PaulH
December 2, 2020 2:08 pm

I would still want to keep enough cash on hand to cover expenses for the next 3-6 months. I’m just being careful, as our political masters seem increasingly inept.

Editor
Reply to  PaulH
December 2, 2020 2:25 pm

PaulH ==> Our family keeps real cash enough for several months food etc….and cash in the bank for a year to 18 months.

Plus other diversified financial goodies….

PaulH
Reply to  Kip Hansen
December 3, 2020 4:09 pm

Even better!

John Endicott
Reply to  PaulH
December 3, 2020 1:56 am

PaulH, keeping an emergency fund of at least 3-6 months of expenses is part of following “good investing advice” mentioned at the end of the article.

cedarhill
Reply to  PaulH
December 3, 2020 7:33 am

Elders are in a tough place with Biden assuming the Presidency AND if the GA runoffs result in a Biden Senate. I.E., there’s much greater political impact that what will be the transient virus impact.

If Biden has a Biden Senate, it’s very likely to have a “crash” into either a correction (best case) or a bear. If either happens due to a Biden Senate, the recovery may well extend beyond most elders lifetimes. The Black Swan event.

On the plus side, Feb 1, 2021 will likely see clarity on both the virus, the Biden, the Yellen and the Kerry impacts.

Oh, and in the words of many Wall Streeters, it’s better to avoid the loss.

Reply to  PaulH
December 12, 2020 10:19 am

The Economy is in awful shape, and that includes the banks with their historically high non-performing loans.

Stocks are high because the FED has flooded new paper money into the system. That started in earnest in Sept 2019 with the REPO crisis.

Please don’t believe government released numbers. For example, CPI is closer to 10% today than 2%. Unemployment still is over 20 million Americans – much higher than the 6.7% lies.

How can stocks accurately foretell our future when the present Economy is so lousy? Stop reading only the mainstream media.

ResourceGuy
December 2, 2020 2:12 pm

A lot of these gains have come from stocks you can count on one hand.

Editor
Reply to  ResourceGuy
December 2, 2020 2:31 pm

ResourceGuy ==> These indexes are pretty broad — hundreds of stocks. While the Dow Jones Industrial average only 30 major stocks, the NASDAQ represents 2,500, the Russel 2000 contains 2000 companies, and the S&P 500 has 505 stocks. Together that’s more than 5,000 equities….

Reply to  Kip Hansen
December 2, 2020 5:12 pm

Kip
They are all market cap weighted indexes
The largest 10 stocks by market cap have a huge influence.
You can avoid that weighting by looking at the Value Line Geometric Average, which is similar to the median stock:
https://www.tradingview.com/symbols/NYSE-VALUG/

John Endicott
Reply to  ResourceGuy
December 3, 2020 2:16 am

While it’s true there are some “stellar performers”, those are not the only ones gaining. I’ve got a portfolio of solid individual stocks that I’ve bought (and been steadily adding to) since the market drop back in march (I love a bargain), and I didn’t buy any of those “count on one hand stocks” – mainly because either 1 share was still too steeply priced for my liking, even at the March bargain prices, or else they’re stocks that don’t have dividends and thus outside my investing goals. And my portfolio, which contains more different stocks than some “indexes” but with the only “weight” being on long time dividend payers, is overall up considerably. Yes, there are a handful of stocks I bought that are slightly down (about 5% of the total) but the majority are up. And since I focus on dividend payers, even if the stocks themselves hadn’t budged in price, I’d still have good gains just on dividends alone.

In short, the gains go well beyond “stocks you can count on one hand”. That doesn’t mean there aren’t any losing stocks out there, there’s plenty of those to be had too (which is why it’s important to do your research before buying), but overall the winners outweigh the losers (hence why the markets are up even when you factor out the performance of the “stocks you can count on one hand”)

Editor
Reply to  John Endicott
December 3, 2020 6:39 am

John ==> You sound like a careful, knowledgeable investor. My family has done very well over the last 30 years by having a very savvy investment manager who provides concierge investment services. I only make strategic decisions – before the recent bust, we shifted a lot of money out of equities into other solid alternatives.

Reply to  John Endicott
December 3, 2020 9:30 am

Actually, the stock market gains this year have been concentrated in 10 large cap stocks (that account for about 25 percent of total Wilshire 5000 market cap) compared with the other 3,.405 stocks in the very broad Wilshire 5000. Don’t ask me why the Wilshire 5000 does not have anywhere close to 5,000 stocks. Wilshire 3000 would be more accurate.

An article on the subject written in September 2020 is here:
https://wolfstreet.com/2020/09/11/wild-ride-of-fangmantis-stocks-v-rest-of-market/

More common is to look at the top 4 stocks “FANG”, or top 5 stocks “FAANG”, of the S&P 500, which does have 500 stocks

A chart – FAANG versus the other 495 S&P 500 stocks –
as of November is here:
https://www.bmogam.com/us-en/advisors/market-charts/faang-stocks-dominating-sp-500s-return/

Why should you care if you don’t own any of these mega-cap stocks?
Because this pattern of market breadth is typical in the last year of a bull market, as it was in 2000.

John Endicott
Reply to  Richard Greene
December 4, 2020 2:53 am

Actually, the stock market gains this year have been concentrated in 10 large cap stocks

The growth in my portfolio of stocks (which contains a lot more than 10, and none of them are those 10 you speak of) says otherwise – as I already pointed out. So your claim has already been refuted by the real world before you even made it, In future read and comprehend before clicking on “post comment”.

Those 10 may be the “biggest” gainers (though once you factor in dividends, which most of those 10 don’t deliver, their gains aren’t as outsized as it first seems), but they’re not the only gainers. Not even the only gainers with significant growth to speak of.

Reply to  John Endicott
December 4, 2020 2:58 pm

Endirot
My comments are based on verified facts.
I used major stock indexes that people are familiar with.
My claim is data based.
Your one anecdote, which I will assume is true, does not refute the data I have summarized and provided links to.

You can’t generalize based on ONE investment portfolio, whose contents are a mystery to everyone else but you.

I wish you future luck with your investments/

I retired at age 51 and lived ONLY on my own investments until I started Social Security at age 65.

I also have a Finance MBA from the Stern School of Business at New York University.

And I published a for profit newsletter, ECONOMIC LOGIC. for 43 years.

Now I just make comments here and wait to be insulted by you.

What are your finance qualifications?

John Endicott
Reply to  John Endicott
December 7, 2020 3:18 am

My comments are based on verified facts.

No, your comment is a generalization with no basis in fact. You claim that “stock market gains this year have been concentrated in 10 large cap stocks ” I showed that’s not true as there are *MANY* stocks that have gained, I know I have several of them. I can literally and easily list hundreds of stocks that have made good gains this year. *THAT* is fact based. You generalized claim is garbage. Yes those 10 stocks did extremely well, but they are not the only stocks to do well. far, far from it.

and no amount of argumentum ab auctoritate/argumentum ad verecundiam will change that. (you aren’t the only one with economic credentials in their background you know, I’ve a few as well. I just don’t make a habit of using them as a point of argument as that would be irrelevant to the validity or not of any point I wish to make. It looks like the Stern School may have given you a degree, but clearly they failed to give you a proper education, otherwise you’d have been aware of that fact before your tried to make a laughable appeal to authority ).

Reply to  John Endicott
December 7, 2020 6:20 pm

Endirott wrote this nonsense a few days later on December 7, 2020:

My claim was that “stock market gains this year have been concentrated in 10 large cap stocks ” is based on publicly available data. The performance of your own portfolio is not “verified” in any way. For all we know. You could own 2 shares of ENRON and 5 shares of TOYS ARE US.

I type these comments slowly so even YOU could understand them. Maybe you should find someone to read my comments to you, and explain them.

I did not say ALL market gains this year were from those 10 stocks. I referred to a market INDEX — those 10 stocks account for about 25% of the total Wilshire 5000 capitalization. They accounted for most of the gains in that INDEX through November..

Since this is a bull market year, it is expected that roughly 90 percent of stocks will go up. That has nothing to do with the over-performance of those 10 big cap stocks. And I was not talking about total returns including dividends.

One stock portfolio, whose contents are known only by you. is just one anecdote. One anecdote does not refute the facts I commented about: Ten large cap stocks have had an unusually large influence on the Wilshire 5000 index so far in 2020. That’s what I wrote. That is a fact.

And you are a troublemaker. But without troublemakers, the internet would be boring. So, may your investment portfolio be so successful that you can afford to light your cigars with twenty dollar bills. And if you provide your address, I’ll send you a cigar. An exploding cigar !

John Endicott
Reply to  John Endicott
December 8, 2020 3:35 am

My dear, sad little grouping, do try to keep up. the discussion was about gains in the stock market. indexes are not the stock market. indexes are only a slice of the stock market. Hate to break it to you but the stock market is a lot bigger than any single index. Shame your business school that you are so proud of failed to teach you that very basic lesson. Maybe you should ask for your tuition money back, clearly they didn’t give you the quality education you were hoping for.

Reply to  Richard Greene
December 5, 2020 5:07 pm

I found some more recent charts of the biggest tech stocks versus the rest of the US stock market, and posted them on my finance and economics blog:
http://el2017.blogspot.com/2020/12/the-big-technology-stocks-versus-rest.html

commieBob
December 2, 2020 2:37 pm

So, how’s the economy doing?

The economy of the European Union is expected to shrink by 7.4 percent in 2020, following the outbreak of Coronavirus (COVID-19) in early 2020, with an economic recovery anticipated in 2021. Spain and the United Kingdom are set to be the worst affected economies, seeing GDP decline by 12.4 percent and 10.3 percent respectively, with Lithuania’s GDP forecast to shrink by 2.2 percent and suffer the least damage. link

Meanwhile in America:

… because we closed a significant portion of the U.S. economy, ‘real’ GDP growth (i.e. the % increase/decrease in economic growth compared to one year prior, ‘net’ of inflation), fell during the second quarter by an astounding 31.40%. link

Growth is down a lot but, that means we’re still growing. Am I missing something?

The economic effects of the Wuflu are rather uneven. Lots of individual people are suffering badly. I really am astounded that the economy hasn’t actually contracted in America.

Sean
Reply to  commieBob
December 2, 2020 3:42 pm

There is Wall street and their is Main Street. The latter is really suffering while the former is being carried by it’s high flyers. Global supply chain allow tangible good to be obtained without regard to the impact the virus has had on the domestic economy. Look at the stories about business bankruptcies in many states. It’s a quarter to a third of small businesses, primarily in retail, food and services industries. As a small business owner myself, I know a lot of your personal net worth can be tied up in a small business. For many small business owners in the hardest hit sectors, that’s been wiped out.

Editor
Reply to  Sean
December 2, 2020 4:31 pm

commie and Sean ==> Covid Madness (governmental responses to the Pandemic) had caused untold, and un-measurable damage to the economies of the world.

That’s the bad news.

The good news is that those of us who depend on pension funds or personal investments for our annual income are going to be OK.

D. J. Hawkins
Reply to  Kip Hansen
December 2, 2020 6:39 pm

OK, so COVID-19 isn’t a giant killer, how do you view a Biden presidency? I can’t see anything but ugliness there for investments. Uncertainty is a market killer, and you can’t get more uncertain about the future than what the Demonrats have in store for the US.

MarkW
Reply to  D. J. Hawkins
December 2, 2020 9:31 pm

Biden has proposed limiting the value of deductions to 28%, including deductions for 401ks. If this goes through, the amount of money going into 401ks and via them into the stock market is going to go down.

John Endicott
Reply to  D. J. Hawkins
December 3, 2020 4:37 am

The saving grace is
1) that the Dem house majority has shrunk considerably and they have a number of moderates that live in district that simply do not want anything to do with some of the more extreme Dem proposals, so getting those ideas through the house will not be as easy as the far-left wing of the party thinks.
2) that, barring massive fraud, the Georgia run-offs should leave the Republicans nominally in charge of the Senate. Which will put a stop to any radical proposals that do make it out of the House.

The main uncertainty in the above is the Georgia run-offs. Should those go to the Dems, expect a huge market correction, as the markets factor in the possibility of some of the Dems more radical ideas actually making it to the presidents desk for his signature.

John F Hultquist
Reply to  Sean
December 2, 2020 5:03 pm

Right Sean.
Being retired with Social Security, no mortage, no car payments, AND broad stock and bond investments, we have been just fine. Also, living in a mostly rural area, we haven’t been stressed by lockdowns.
But, we do know folks that have been seriously impacted. This makes us vary sad.
I’ve suggested our governors and mayors should have at least 85% of their salaries and wealth taken from them. This won’t happen, and that makes us very angry.

Editor
Reply to  John F Hultquist
December 3, 2020 6:42 am

John F Hultquist ==> You have the situation almost everyone should have — and such is he result of sound family financial management.

Andy Espersen
Reply to  John F Hultquist
December 3, 2020 7:44 am

Yes John – the fact that stock markets are doing well has no bearing on the sufferings of individuals. The markets did OK during the war – while millions suffered grievously. And it is the general misery of the little folks, the small vulnerable businesses, caused by lockdowns we should consider.

Bill Parsons
Reply to  Sean
December 3, 2020 10:52 am

Yes. The high flyers are prospering because they are the tech tools needed to work and study remotely. The trend to work and study from home was well under way before Covid, and had a lot going for it that would seem to appeal to Dems: no commute times, reduced pollution, no need for child care, etc.

However… between 30 – 40% of states’ budgets go to public k-12 schools and colleges – their largest expenditures. We pay for millions of free breakfasts and lunches, “alternative education” opportunities and elaborate luxuries for our kids at college.

Probably because of these expenditures, Democrats, teacher’s unions and colleges reserve a special kind of venom for “for profit” educational institutions – the virtual institutions (stripped of all but content) that have been essential to filling the gap in the educational communities that unions, teachers, refuse to serve because of covid. And a good deal of their ire seems to be directed at the big tech businesses that support these institutions: Apple, Google, Miscrosoft…

As businesses, schools and governments have now gotten more comfortable working from home in pajamas it gets harder for them to answer: “How are they gonna keep ’em in gay Paris, once they’ve been down on the farm?”

whiten
Reply to  commieBob
December 2, 2020 8:48 pm

commieBob
December 2, 2020 at 2:37 pm

“Am I missing something?”
—————————-
Maybe I am wrong but, you referring I guess to the;
“fell during the second quarter by an astounding 31.40%.”

Which if again, if I am not wrong is possibly a misleading trick (fear porn) as the “31.40%.” is a quarter value at an annual “projection”.

According to the annual value “projection”;
it went up by an astounding ~33% in the third quarter.

The article you link at, in my opinion and understanding is no more than
a fear libtard porn.

Maybe am wrong, but hey just kinda of chipping in.

cheers

John Endicott
Reply to  whiten
December 3, 2020 2:22 am

You are indeed right in your observation about the CB’s linked article. Remember there are 3 kinds of lies: Lies, Damn Lies, and statistics.

commieBob
Reply to  John Endicott
December 3, 2020 8:17 am

Yep.

Even so, they are admitting that the economy is still growing. That’s pretty astounding and I think President Trump has to get the credit for that.

Reply to  commieBob
December 3, 2020 10:17 am

3Q 2020 Real GDP was lower than 4Q 2019 GDP

That’s not growing.

Maybe 4Q 2020 will get us over 4Q 2019 but these increasing COVID lock downs are moving the economy in the wrong direction.

GDP Now predicts 11.1% annual growth rate in 4Q 2020
Federal Reserve Bank of Atlanta
https://www.frbatlanta.org/cqer/research/gdpnow

GDP Nowcast predicts 2.8% annual growth rate in 4Q 2020
Federal Reserve Bank of New York
https://www.newyorkfed.org/research/policy/nowcast/overview.html

If they don’t know, then I have no idea how this year will end.

whiten
Reply to  commieBob
December 3, 2020 11:34 am

Richard Greene
December 3, 2020 at 10:17 am,

commieBob
December 3, 2020 at 8:17 am
and

John Endicott
December 3, 2020 at 2:22 am

For the sake of further clarification of my reply to
commieBob’s comment.

First, the comment of commieBob, in my view, is an excellent example
of showing clearly an impact on the masses from the sting poisonous propaganda narrative from the stupid libtard propaganda global brigade.

Simple, the Bob’s comment shows in it’s core a clear comparing of a similar situation between EU and America.
The paragraph selection from two different articles.

At first look, it seems clearly as comparing apples to oranges.

One consist as a forecast projection value(s) in an annual cycle
versus the other,
a real happening given in a quarter period value.

Two very different standard platforms.

But an adjustment of the quarter period real value to an annual forecast projection, kinda of fits a possible route to attempt comparing in this case.
Only simply magnifying of the real quarter value to the prospect of an annual projection value could give one the means of deceiving.

The “31.40%” is the adjusted value for an annual projection, not real or with any actual meaning or merit, unless in consideration and attempt of producing a very deceiving and poisonous narrative, where many may be fooled, some times easy, in considering and believing that USA is doing far much worse than EU could ever face according to the annual value forecast projection for EU… when actually USA is doing great still, under the circumstances… maybe far much better thus far than any one else in the entire world.

The V shape recovery of Trump is a brilliant narrative, as it is very successful and firm, as it simply happens to be true… and not some phony libtard machination… regardless of the very deceiving and poisonous
narrative of the libtard camaraderie at large .

Oh well, just trying a keep with the chipping in.

It is very clear to me, as Bob very simply and clearly showing in his comment the actual propaganda narrative impact, of such a phony and intended deception by the infra anti American fascists.
Where shown how easy some times is to fall for such deceptions…
and mental manipulation sinister acrobatics.

Thank you friends.

Thank you Bob… 🙂

cheers

Reply to  John Endicott
December 7, 2020 6:24 pm

Four kinds of lies.
(4) The truth kept hidden from the public.
Such as the Hunter Biden laptop computer contents.

Reply to  whiten
December 3, 2020 10:04 am

I don’t know of any other nation that estimates the quarter to quarter change in real GDP, and then multiplies the number by four to confuse everyone.

I wrote an article in my finance and economics blog in October about the wild GDP numbers this year, with good charts, explaining what really happened — it’s not updated for the November 2020 first revision to 3Q Real GDP, but is close enough.

The US economy at the end of Q3 2020 was producing fewer goods and services than the US economy was producing at the end of 4Q 2019. That’s all you have to know. Everything else is noise.

https://el2017.blogspot.com/2020/10/3q-2020-real-gdp-is-down-36-percent.html

Planning Engineer
December 2, 2020 2:57 pm

Although retired, my investments are spread out broadly consistent with long term investing. The initial dip was brutal, but things have bounced back and made strong gains beyond recovery.

It seems Covid has been devastating for small businesses and limited segments of the economy impacting big businesses (like cruises and major restaurant groups). In some cases the closing of smaller businesses will prevent opportunities for big business. Maybe irrational optimism is promoting markets, or maybe stocks are doing well because businesses will continue to play a major role as life goes on. Certainly low income and unskilled workers have it the worst and hopefully as restrictions ease the strong economy/market will provide support for smaller businesses to re-emerge and provide needed jobs.

Planning engineer
Reply to  Planning Engineer
December 2, 2020 2:59 pm

Prevent opportunities is supposed to be provide opportunities. Damn spell checker.

Editor
Reply to  Planning Engineer
December 2, 2020 4:35 pm

PE ==> Those of us who have been financially lucky (meaning we have managed to have good jobs, good spouses who didn’t spend us into the poor house) and financially prudent (saving a percentage of income every paycheck and investing wisely, not gambling) are going to bre OK, as the economy will come ROARING back as the vaccine settles fears and people all get back to work making up for lost time.

TonyG
Reply to  Kip Hansen
December 2, 2020 5:46 pm

I think that will very likely depend on what kind of tax and regulatory environment we emerge into on the other side of this virus mess.

John Endicott
Reply to  TonyG
December 3, 2020 4:39 am

And that will depend on who wins the Georgia Senate races.

Isaac Walton
December 2, 2020 3:16 pm

Kip,
You appear to be ignoring the effect of quantitative easing. Since March the US federal reserve has printed over 3 trillion dollars and given that money to various banks and other financial institutions. Much of which went into stocks given that interest rates are so low. What the stock market would look like without this massive intervention from the government is anybody’s guess.

Editor
Reply to  Isaac Walton
December 2, 2020 4:38 pm

Isaac ==> I offer no opinion other than investors are confident and driving stock markets up.

I only focus on the good news that pensioners and nest-eggers are going to be alright.

Isaac Walton
Reply to  Kip Hansen
December 2, 2020 5:11 pm

Kip,
The fact that currently the stock market is high is no guarantee that it will continue to remain at current levels. Nor does it mean that pensioners are going to be alright since (a) dividends are low and current interest rates on savings and US treasury bonds is close to zero. If you had stock in Tesla or Uber for example you would have seen your shares more than double in value but you would be getting zero in dividends since they are still losing billions of dollars.

Currently the stock markets worldwide appear only loosely connected to reality. If a vaccine for COVID is rolled out successfully in 2021 then that might not be a problem and prices will continue to go up. But there could just as easily be a shock that causes a large market collapse.

Editor
Reply to  Isaac Walton
December 2, 2020 6:46 pm

Isaac ==> Of course past results are no guarantee of future results. But markets at all-time highs beats the heck out of markets tanked and pension funds going broke – – – – works for me and hundreds of thousands like me.

John Endicott
Reply to  Isaac Walton
December 3, 2020 2:36 am

If you had stock in Tesla or Uber for example you would have seen your shares more than double in value but you would be getting zero in dividends since they are still losing billions of dollars.

Which is why a lot of retired investors focus on dividend stocks and not on the Tesla and Uber type stocks. Dividend stocks mostly are still paying dividends. I know as I’ve bought quite a few of them since March and been reinvesting the dividends they’ve been paying me. Yes a few dividend stocks suspended or cut their dividends, but relatively not that many. But not only are they still paying dividends, they’ve also see gains in their value (again, I speak from experience with my own portfolio of dividend paying stocks bought this year).

But there could just as easily be a shock that causes a large market collapse.

That’s always been a possibility from day 1 of the stock market. There have been several such “shocks/crashes” over the years. That market has always recovered. Even the worst one (back in the 1920s, maybe you heard of it) eventually recovered (and a lot quicker that you might have been taught once the value of dividends are factored in – you can’t just look at stock prices, you have to look at the whole picture, which includes dividends).

John Endicott
Reply to  Isaac Walton
December 3, 2020 4:25 am

The fact that currently the stock market is high is no guarantee that it will continue to remain at current levels

Indeed, they could go higher. They may even go lower at some point, before going back up. The point is right now, the outlook is good contrary to the doom and gloom that was predicted earlier in the year.

Nor does it mean that pensioners are going to be alright since (a) dividends are low

Not really. a small number of reliable dividend stocks cut or suspended their dividends, the majority did not and a number of them even raised their dividends. Yields were actually quite high earlier in the year due to the market drop (price and yield are inversely related – as one goes down the other goes up). Even at todays values, there still are plenty of solid dividend stocks paying good dividend yields.

current interest rates on savings and US treasury bonds is close to zero

That unfortunately is true. The upside of that is that as those go down, stocks tend to go up. so pensioners and nest-eggs who are invested in the stock market benefit.

Those who are only invested in savings accounts, are gonna have some difficulties but, frankly, shame on them for not diversifying their investments like they should have.

Bonds are a bit trickier, while current bond yields are abysmal (so buyers of new bonds aren’t going to make much gain), holders of older bonds may still have some fantastic yields depending on when they bought them and what type of bond they are.

For just one example of one type of bond, the US savings I-Bond which has a composite rate made up of a fixed for the life rate and a inflation adjustment rate that changes every 6 months (to protect your investment from the ravages of inflation) and are good for 30 years. If you bought one of those babies in 2000 when the Fixed rate was 3.4%, you’ll still have ten years to accumulate 3.4% + inflation (current rate annualized at 1.68%) for a current annualize composite rate of 5.08%, that’s pretty good in today’s environment. whereas if you bought one today you’d have 30 years to accumulate 0% fixed + inflation (current rate annualized at 1.68%) for a current annualize composite rate of 1.68% rather meh, but still better than most savings accounts.

Reply to  John Endicott
December 3, 2020 10:28 am

John the top 85% of households (by income) own almost 95% of stocks (by market value).

The bottom 50%(by income) own almost no stocks — many don’t even have savings.

So please realize that a rising stock market benefits far fewer people than a rising Real GDP growth rate and a falling unemployment rate

John Endicott
Reply to  John Endicott
December 4, 2020 2:04 am

John the top 85% of households (by income) own almost 95% of stocks (by market value).

Well at least you have an appropriate last name, as your envy is on display. Other than envy, so what? The rich have more? dogs chase cats, the sun rises in the east. Tell me something else that is well know why don’t you.

So please realize that a rising stock market benefits far fewer people

The stock market represents companies, it’s one of the ways companies raise capital, and those companies hire people. The stock market’s benefits go well beyond the direct benefit to stock holders. If you’d look beyond your envy of “the rich” maybe you’d be able to see that. But your posts give me no hope that you can capable of such.

u.k.(us)
Reply to  Kip Hansen
December 2, 2020 5:25 pm

When CD’s are paying 2%, and inflation is running at what…3.5%, is there any other play besides the stock market ??
No wonder it is rising, it is all about faith.
Faith that most people will play by the rules, but there need to be rules.
It is a free-for-all right now.

John Endicott
Reply to  u.k.(us)
December 3, 2020 4:44 am

When CD’s are paying 2%

More like 1.5% and that’s if you shop around for the best rates and are willing to lock your money away for several years. (At least here in the US in my particular region, can’t speak to what the CD rates are in other countries or what some local bank rates might be available in other regions of the US).

u.k.(us)
Reply to  John Endicott
December 3, 2020 5:25 am

Yep, I locked in at 2% for 5 years, just about 3 years ago.
It hurt me to do it, but the only alternative was the vagaries of the financial markets.
You get better odds with the ponies 🙂

John Endicott
Reply to  John Endicott
December 3, 2020 6:58 am

Yeah, I locked in some money @ 3% for 3 years a close to a couple of years back, before the fed started cutting its rate. Wish I’d gone with a 5 year now, as I doubt rates will be much improved from their current state when that CD matures in slightly more than a year from now.

Reply to  Kip Hansen
December 2, 2020 5:28 pm

Not intending to be an insult but …
stock prices always peak at high levels of confidence.
and trough at low levels of confidence

Unfortunately investors have a maximum amount of money invested in stocks and a ,imimum amount in cash at market peaks,

Those people interested in buying low and selling high should be aware that stock valuations today are at record peaks. Two valuation imdicators that work well to predict market returns over the next 10 years are extremely bearish:

Those two valuation indicators are the S&P 500 Price to Sales ratio and Total stock market capitalization as a percentage of GDP, sometimes called The Buffett Indicator:

https://www.multpl.com/s-p-500-price-to-sales

http://www.currentmarketvaluation.com/models/buffett-indicator.php

John Endicott
Reply to  Richard Greene
December 3, 2020 4:29 am

Those people interested in buying low and selling high

AKA those people trying to time the market. Pensioners and nest-eggers should not try to time the markets, they should be striving for time in the markets.

Reply to  John Endicott
December 3, 2020 9:57 am

Buy and hold forever is not how professional investor make their money.

100% invested at record high stock market valuations makes no sense. We are now at record stock valuations.

100% invested at low stock market valuations makes a lot of sense.

Only the ordinary people are told to buy and hold forever, and “now” is always a good time to buy.

The people who tell them that all work for financial companies that do NOT follow their own advice.

Even a brilliant investor like Warren Buffett sometimes holds a huge amount of cash — $140 billion at the end of third quarter 2020 — when he see no bargains.

John Endicott
Reply to  John Endicott
December 4, 2020 2:38 am

Timing the market is how people lose money/lose out on the opportunity to make money. If timing the market was so easy everyone would be stock market billionaires.

You can’t time the market. Because the “market” being at “all time highs” is meaningless – as the market is going up it will continue to hit all time highs (we’ve had several this year) and conversely when the market is going down it will continue to hit lower numbers. It’s only when it stops going in one direction and is going in the other that you’ll know the actual high or the low has been reached, and that is something that is only known in hindsight.

So if you got out at todays all time high, you miss out on tomorrows, the next days, the next weeks etc. all time highs for however long the market continues to go up (which could be days, weeks, months or even years. You don’t know how long it will, no one does). And the reverse is true, get in at “the low” only to see stocks continue to fall to newer lows for however long the market continues to fall. Mistime it, which is a lot easier to do that timing it, and you can easily do a lot worse than had you just stayed in the market and did nothing.

It’s also meaningless because while “the market” being at “an all time high” does not mean that any particular stock you might be interested in purchasing is at its “all time high” even at the market bottom in march, there were stocks that weren’t falling (few though they may have been) and even at the current highs, there are stocks that aren’t yet rising (but have the potential to do so in the future).

Timing the market is a mugs game. You have to look at the individuals stocks (or other investment vehicles) you hold (or are interested in buying), not at the market, and decide, based on the strength and weaknesses of those stocks whether holding on to them or letting them go makes sense at any given point in time, regardless of what “the market” is doing.

Remember not every stock is for every investment strategy. If you are a dividend investor, you want to buy stock of good solid dividend paying stocks, and once you have them you want to hold on to them for as long as they remain good solid dividend paying stocks. what you don’t want to do is try to time the market and miss out on a lot of dividends. Mistime the market and not only do you lose out on the dividends, you’ll end up paying more when you think it’s time to buy again than if you simply held on.

Whereas if you are a growth investor, you look to buy stocks with strong growth potential and you want to hold on to them for as long as they have strong growth potential. What you don’t want to do is try to time the market and miss out on the a lot of growth. Mistime the market and not only do you lose out on the growth, you’ll end up paying more when you think it’s time to buy again than if you simply held on.

Long story short, you want to buy stocks as low as you can get them. Which could well be todays prices, depending on the individual stock. And sell them as high as you can, which may not be at todays prices, depending on the individual stock. Buy low, sell high is easy to say, not so easy to do. It really does depend on the individual stock and your investment goals, not on what number the Dow, Russel, Nasdaq, etc has reached.

John Endicott
Reply to  John Endicott
December 4, 2020 4:54 am

And speaking of Buffet, you do realize he’s a believer in buy and hold forever contrary to your own thesis that investors don’t make money that way.

He’s got stocks that now yield him as much as 50% in dividends because they’re good solid companies that he’s held stock in for decades. For example. Buffet’s cost-basis in Coca-Cola is $3.245 a share and he’s currently getting $1.64 a share in dividends every year! If Buffet followed your advice, he’d have sold it decades ago and would not have that fantastic and relatively safe yield on his cost-basis.

“Our favorite holding period is forever.” – Warren Buffet

Keep in mind, however that the above quote is about the ideal. few stocks live up to the ideal, which is why you have to evaluate, on an individual stock level, the time to sell that makes best sense for your investment goals. Not based off of what “the market” is doing.

John Endicott
Reply to  John Endicott
December 4, 2020 5:04 am

And also,…

100% invested at record high stock market valuations makes no sense.
100% invested at low stock market valuations makes a lot of sense.

Wrong, 100% invested makes no sense, ever. Never put all your eggs in one basket. You should always keep a reserve of cash for emergencies, for when a good investment opportunity comes along, etc. (As you point out, even Buffet keeps a significant cash reserve). You should also have a portion of your investments outside the stock market (Bonds, precious metals, etc. are all possible options). I Pity anyone that tries to follow your investing advice. They’re set to have significant financial difficulties the first time they mistime the markets (which they’ll eventually do, guaranteed).

Reply to  John Endicott
December 4, 2020 3:08 pm

Endirot
Your advice seems to be buy and hold forever.
Stock market valuations don’t matter
The best time to buy is now
1929 was a good time
2000 was a good time
Late 2020 is a good time
Always a good time to buy.
You could have been an ace stock broker,
That’s what most of them say.
But you need about 100 times more words to say that !

Reply to  John Endicott
December 5, 2020 5:03 pm

Endirott
You might want to study Warren Buffett”s investments, which are public information, after a few months delay.

While he holds many positions for very long periods of time, he does sell portions of those positions at times, or adds to those positions at other times, which is a form of market timing, based on his valuations.

He also makes some mistakes, and sells some positions completely.

And when he finds no bargains, by his definition, Buffett holds a lot more cash than usual.

John Endicott
Reply to  John Endicott
December 7, 2020 3:06 am

Greene, the name is not “Endirott” It’s “Endicott”. Apparently your attention to detail in typing my name is every bit as poor as it is to comprehending what I wrote.

You might want to study Warren Buffett”s investments

Take your own advice, as what his investments (as you describe them) show is right in line with what I said.

Compare (with comprehension, apparently a task that is difficult for you):

You: “While he holds many positions for very long periods of time, he does sell portions of those positions at times, or adds to those positions at other times”

Me: “You have to look at the individuals stocks (or other investment vehicles) you hold (or are interested in buying), not at the market, and decide, based on the strength and weaknesses of those stocks whether holding on to them or letting them go makes sense at any given point in time, regardless of what “the market” is doing.”

That’s not, as you wrongly put it, timing the market. It’s evaluating your holdings (or potential holdings) and making moves that make sense based on the individual stocks, not the market. If you look over the history of his investments vs the market, you’d see he’s not a market timer at all, as his moves have little correlation to what the market is doing. They’re mostly based on the outlooks for the individual companies. When a company looks like a good investment based on it’s fundamentals, he buys. When things change and the companies look to no longer be a good investment (taking on too much debt, installing a new management team that he has no confidence in, etc) he sells.

Reply to  John Endicott
December 7, 2020 7:00 pm

Warren Buffett may have a very low portfolio turnover, unlike most mutual funds, but he is not fully invested at all times with no turnover.

Buffett held about $140 billion of cash at the end of 3Q 2020 — holding that much cash IS market timing.

Buffett is not fully invested at all times, dollar cost averaging with new funds.

Many people invest in stock index ETFs. They do not care about individual stocks. They can invest the same percentage of their salary every month without thinking.
Or they can consider stock index valuations, where March 2020 was a much better time to add extra money to the market than December 2020. That’s market timing too.

John Endicott
Reply to  John Endicott
December 8, 2020 3:29 am

Warren Buffett may have a very low portfolio turnover, unlike most mutual funds, but he is not fully invested at all times with no turnover.

No one claimed otherwise, my sad little groupie. You’d need to get my attention has led you to post irrelevant comments that have little to do with what was being discussed. how sad. You want my attention so badly then keeping dancing little groupie, keep dancing.

John Endicott
Reply to  Isaac Walton
December 3, 2020 2:40 am

What the stock market would look like without this massive intervention from the government is anybody’s guess

and largely irrelevant. We don’t live in a world in which “this massive intervention from the government” didn’t happen, just as we don’t live in a world in which the governments didn’t force businesses to shut down causing downward pressure on the market in the first place. “what coulda beens” can make for good mental masturbation, but little else.

sky king
December 2, 2020 3:31 pm

The Fed keeping interest rates near zero buying bonds is driving the stock market. Plus the threat of more Xi Virus response spending by Congress.

December 2, 2020 3:33 pm

That’ where inflation is manifesting.
Booms are followed by busts.

rah
December 2, 2020 3:38 pm

COVID lockdown conditions kill Main Street and that is great for Wall Street.

Tom in Florida
December 2, 2020 4:01 pm

The silver lining is that some stocks became real bargains. However, you have to have confidence that a particular stock trading at a bargain price will recover and the balls to take advantage of the bargain.

Ed Reid
December 2, 2020 4:22 pm

“Predictions are hard, especially about the future.”, Yogi Berra, American philosopher

Reply to  Ed Reid
December 2, 2020 6:23 pm

Yogi Berra never said that.
He did say this:

“I didn’t say everything I said.”
Lawrence “Yogi” Berra

From my favorite philosopher, and previously my favorite New York Yankee ball player when I was a child in New York

The book by the same name as the quote above is one of my favorites, when I’m not reading about the latest news in quantum physics, and the history of hOOters restaurants.

http://www.google.com/search?hl=en&gbv=2&q=The+Yogi+Book:+I+Really+Didn't+Say+Everything+I+Said!&stick=H4sIAAAAAAAAAONgVuLRT9c3rEwpq8rLTikAAIJ_I8AQAAAA&sa=X&ved=2ahUKEwioo5vU37DtAhVkSzABHS-KAjYQ6RMwAXoECAYQAw

Ian Coleman
Reply to  Richard Greene
December 2, 2020 7:44 pm

Hello Richard. This is a verified Yogi story: A woman said to Yogi, you look cool. And Yogi said, “Thanks. You don’t look so hot yourself.”

Also, Casey Stengel said some pretty nifty things. He said, “They say it can’t be done, but it don’t always work.”

Reply to  Ian Coleman
December 3, 2020 10:40 am

It was a very hot day in NYC when Berra was at some outdoors event with Mayor Lindsay and his wife.

Mrs. Lindsay – “You certainly look cool.”
Yogi Berra – “Thanks, you don’t look so hot yourself.”

My favorite Yogi advice is:
“It ain’t over ’til it’s over”
… which I think of all the time
when I’m playing backgammon
hoping for a lucky dice roll.

John Endicott
Reply to  Richard Greene
December 3, 2020 4:53 am

Yogi Berra never said that.

possibly not. Even if he had, it’s likely it wasn’t something he came up with himself, as it’s origins seem to go back to an old Danish saying (author unknown).

Michael Jankowski
December 2, 2020 4:24 pm

Without COVID, Trump would have been re-elected. Stock market and economy would be rolling and would have rolled for another 4 yrs.

With COVID, Biden won. Kidding yourself if you think the market or economy won’t suffer greatly.

UNGN
December 2, 2020 4:36 pm

So what this is saying now is the perfect time to ease out of the stock market while its near record highs. I’m in Aerospace. There is a lot of pain still out there. A lot. The light at the end of the tunnel still has a 79% chance it’s a train.

I have diversified and have 5% in RYURX for insurance but that could go to 25% RYURX if I see stuff starts going south.

Bill Parsons
Reply to  UNGN
December 3, 2020 12:14 pm

Why is DFEN still going up?

December 2, 2020 4:37 pm

Since March, the Fed has poured 3.5 trillions in state financing to buying stocks and bonds. Socialism for billionaires, financed by the 99% who are hurting. That’s why stocks act as if they are helium balloons. Greatest theft in history. Maybe after the pandemic ends, people will demand their money back. Hope so.

John Endicott
Reply to  Eric Lerner
December 3, 2020 2:50 am

the Fed has poured 3.5 trillions … financed by the 99% who are hurting

Um, no. financed by printing money. And while, in theory printing more money means higher inflation, that hasn’t really manifested as yet (at least at the 99% level). Mainly for two reasons: 1)COVID has caused a slowdown in consumer demand. People aren’t spending like they use to (because they literally can’t when stores, eateries, sports venues, etc are closed and they are lockdown in their houses), – this is a deflationary pressure that offsets the inflationary pressure of printing more money and 2) most of the money, as you say, ended up in the financial sector, meaning that it’s in the financial sector where you’ll find most of the inflation (stock & bond prices going up).

Tom in Florida
Reply to  John Endicott
December 3, 2020 5:01 am

The exception of people spending is the appliance sector. We had the best summer and fall ever. Since people were not spending money on vacations, dining out and other such activities, many decided it was time to replace those older appliances or update their entire kitchens. The problem now is that manufacturing has not been able to keep up with demand. It is very hard to get many appliances without a long wait. The back end websites for these companies give a projected date of delivery but constantly change those as they cannot meet even their own projections. That does not play well with customers who are waiting and waiting for their orders to come in.

John Endicott
Reply to  Eric Lerner
December 3, 2020 5:25 am

the Fed has poured 3.5 trillions in state financing to buying stocks and bonds

Also incorrect.
1) The Fed bought no stocks. It does not have the legal authority to buy stocks, congress could give it that authority if it wished. It has not and the Fed has never asked Congress to do so.
2) not all the money went to buying bonds. $2 trillion of it was for low-interest loans to businesses, and state and local governments (The loans are expected to be repaid and why the Cares act earmarked $454 billion for Fed programs, in part to cover the cost of loans that end up defaulted )

Reply to  Eric Lerner
December 5, 2020 11:04 am

So far the only comment with sense…December 5

TonyG
December 2, 2020 5:42 pm

By its very nature, the “stock market” as a whole reflects bigger companies, not the small local businesses that have suffered the most from this mess. Amazon is doing VERY well. Dollar General has exploded. Fast-food companies and their franchises (most owned by big corps themselves) have done quite well, being already set up for drive-through and take-out business.

But how many privately owned restaurants, boutique shops, and service companies have been hurt, or completely failed?

Stock market doesn’t reflect that.

It’s not an indicator of faith in the economy, it’s an indicator of the investor’s faith IN THE STOCK MARKET.

Editor
Reply to  TonyG
December 2, 2020 6:49 pm

TonyG ==> Faith, confidence, call it what you will.

Up is better than down.

William Astley
December 2, 2020 6:12 pm

I think I would wait before making any large stock purchases. The market is super over priced and there is paradigm change coming. Sort of obvious….

Logically, the spend, spend, spend party (with no consequences) would and is coming to an end.

Q predicts, that China is going to start a trade war in January soon after the US Milt announce their findings into the origin of covid.

The 305 Military Intelligence Battalion (this is the battalion that has the CIA Frankfurt server) are at the same presentation, going to explain what was found on the CIA Frankfurt server.

The US MIlt presentation will of course use interesting flip charts that will show what info is on was on the server; how the 2020 US election info is captured on that server; and what role the CIA/FBI had in the fix.

The US Milt presentations all include facts to justify actions and they use graphics to explain concepts to people. No politics. No name calling. It is going to be surreal. What happened in 2020?

Q has a plan to get China to pay for US covid damages.

Comment:
It is odd that all of the Western countries are planning to spend their country to death and on covid and fighting the climate emergency. Canada the country lead by the drama teacher is a great example of the new young leaders who are like clueless Zombies. (Deficit increases by a factor of ten, largest in percentage of GDP since second world war)

https://www.reuters.com/article/us-canada-economy-idUSKBN2492UQ

OTTAWA, July 8 (REUTERS) – Canada’s budget deficit is now forecast to hit C$343.2 billion ($253.4 billion), the largest shortfall since the Second World War….

… than the C$28.1 billion that Canada’s ruling Liberals had projected back in December 2019, before much of the Canadian economy was temporarily shut down to curb the spread of the novel coronavirus.

https://www.foxnews.com/politics/whistleblowers-postal-service-threw-out-backdated-ballots-election-trump

John Endicott
Reply to  William Astley
December 3, 2020 2:58 am

I think I would wait before making any large stock purchases

Indeed. When it comes to market timing, the bargains are far fewer now and the time to buy big was back in March/April when the market bottomed out. It has since recovered those loses and moved beyond them to record highs. But that doesn’t mean you can’t participate in the markets (there are still bargains to be found and ways of mitigating market expenses such as dollar cost averaging), it just means you missed the market timing window of opportunity (but then most people do. It’s not easy to time the markets. It’s better to have time in the markets)

Reply to  John Endicott
December 7, 2020 7:06 pm

Endicott
You were against market timing in other comments.
Have you flip flopped?
Are you a flip flopper?
Well at least I spelled your name right.

Being “in” the markets doesn’t mean 100% in at all times.
Or 100% in during all years.

John Endicott
Reply to  Richard Greene
December 8, 2020 3:26 am

Oh look, I’ve gain a groupie, following me around from post to post. Dance little groupie, dance.

curly
December 2, 2020 6:12 pm

The chart for the NASDAQ especially, and for the SP500 which are both dominated by the big tech companies, remind me a lot of a chart from 1999 had pasted on her cubicle wall, before the crash, when it was on the nearly vertical part of the parabolic curve.

But it’s ‘different this time’.

UNGN
Reply to  curly
December 2, 2020 6:41 pm

There was a Rah Rah guy on the radio the other morning saying THE STOCK MARKET LOVES THIS!!!!!!!!” meaning the uncertainty and the obscene deficit spending propping it up.

It reminded me so much of the Solomon Smith Barney guy telling my dad to “buy more Worldcom!!!!” (while they were dumping it) I had to call him and tell him to “get out now”.

He gave me the same “pish posh” he gave me 20 years ago when he lost about 75% of his net worth.

I’ve made my 7% for the year. I’m good. Y’all enjoy the ride. I may be out for a couple months, I may be out for a couple years, I doubt I’ll miss much.

curly
December 2, 2020 6:26 pm

And I don’t know why, but I’m always surprised at the list of largest companies by-revenue. The high-flying stock companies are not in the top 10. Not many are in the top 20. Though a lot of the oil&gas big kids are.

And if you look at year-to-date for the SP500, there was a nice trading swing starting down in late Feb and bottoming in late March, and then back up as the FED and the Feds threw more money out there. “A trillion here, a trillion there, pretty soon you’re talking real money.” to paraphrase a bit.

Tom in Florida
Reply to  curly
December 3, 2020 5:15 am

My wife and I were fortunate to both be working in COVID proof sectors so we didn’t see a loss of income and were able to use the federal stimulus money to buy of more of my favorite stock which was trading at 25% of its normal price range. Now, I certainly understand that others aren’t so lucky and needed that money simply to survive. But since I had no influence on the stimulus package decision, I used it to my advantage without any regerts.

SAMURAI
December 2, 2020 8:06 pm

The stock market is currently assuming the GOP will maintain their Senate majority following the Georgia US senate runoff election which will assure a gridlocked legislature to prevent the Biden administration from passing any anti-business legislation: massive tax increase, increasing minimum wage to$15/hr, massive Green New Deal spending, massive increase in private-sector regulations, rent controls, anti-fossil fuel bills, etc.)

If the GOP loses their senate majority after the Georgia runoff election, the stock market will take a nose dive, and rightfully so…

If a Leftist Biden administration controls all three branches of government, they’ll assure the GOP never regains control of any of the 3 branches of the federal government for the next 100 years by:
1) Packing SCOTUS with 6 new Leftist judges.
2) Granting amnesty to 20+ million illegal aliens (70% of whom will vote for Leftists)
3) Packing the Senate with 4 new seats by granting statehood to DC and Puerto Rico.
4) Implementing an open-border immigration policy to assure a steady stream of future Leftist voters…

It’s so bizarre the future of our Republic, economic prosperity, and freedoms depend on a Georgia runoff election…

And so it goes… until it doesn’t..

Ian Coleman
December 2, 2020 9:15 pm

On the subject of stocks, Tesla has a market capitalization that is egregiously disconnected from its profitability, which is often negative.

And don’t tell me that insider information is not crucial to profiting from investments. Suppose you had known a week ago that Pfizer was about announce successful testing of its vaccine, and you bought Pfizer stock. You’d be richer today.

John Endicott
Reply to  Ian Coleman
December 3, 2020 3:06 am

Indeed, it’s easy to profit when you have insider information, which is why trading on non-public insider information is illegal. If I worked for Pfizer and bought stock based on the knowledge that within a week they’d be announcing successful testing of its vaccine, I could end up in jail.

Ian Coleman
Reply to  John Endicott
December 3, 2020 11:34 am

Actually, John, I didn’t know that, as I am in fact pretty ignorant about the stock market. How could it be possible to keep extremely valuable information secret? If you had insider information, wouldn’t you get a proxy to buy your stock for you? There must be some sort of triggering algorithm. Somebody makes a huge buy or sell just before a dramatic reveal and the SEC (or whoever it is) comes knocking.

John Endicott
Reply to  Ian Coleman
December 4, 2020 9:32 am

Oh I’m sure some number of people manage it and get away with it (particularly if they’re “small fish” whose transactions would be beneath notice). Some of the more well known cases of people convicted of insider trading:
Martha Stewart (jailed)
Michael Milken (jailed)
George Soros (fined)

you can read more about some others at the following wiki link:
https://en.wikipedia.org/wiki/Category:People_convicted_of_insider_trading

Reply to  John Endicott
December 7, 2020 6:42 pm

Wrong again Endirott

Martha Stewart was NEVER even charged with insider trading, much less convicted.

Stewart never got inside information from an ImClone corporate insider. She was merely tipped by her stockbroker that a relative of the CEO — I believe it was his daughter — sold a lot of shares. That person was not a corporate insider. The stock broker did not know why she sold the shares. She might have needed the money for a new mansion.

Martha Stewart was not convicted for criminal insider trading charges, although she later had to pay $195,000 to settle a civil case with the Securities and Exchange Commission. In her criminal case, she was found guilty of conspiracy, obstruction of justice and lying to federal investigators in March 2004 and served five months in prison. The strange fact is she tried to hide actions that were not criminal, thereby making herself look like a criminal. And they convicted her for that.

Martha Stewart was imprisoned, unfairly in my opinion, for lying to the FBI about actions that were not criminal. The same thing almost happened to General Flynn.

John Endicott
Reply to  John Endicott
December 8, 2020 3:24 am

Yes and no. You are correct that she wasn’t convicted on the insider trading charge. Mea culpa on that one. She, however, was charged with insider trading, but that charge was later dropped. My bad for forgetting the charge was dropped before conviction on the other charges (basically for lying about the alleged insider trading, rather than for the alleged insider trading itself). Your bad on claiming she was never charged for insider trading. she was, but it was later dropped. dropped charge not equal never charged.

However the case was all about insider trading, if you think otherwise you weren’t paying attention. If it wasn’t for the insider trading issue, she’d never have run afoul of the law in the first place. She was suspected of insider trading, that’s what brought the attention of the law on her in the first place. (that charge was dropped after investigation determined that she didn’t act on explicit knowledge of the FDA’s decision about ImClone’s drug approval).

Kit P
December 2, 2020 9:56 pm

“Being retired with Social Security, no mortage, no car payments, ……Also, living in a mostly rural area, …..”

This is why I can live on Social Security. Each month I run out of time doing the things I enjoy before running out of money. Also pay no federal or state income tax.

Also reached the age where goverment regulations meant that I had to start getting income from retirement accounts. Earlier in the year I thought I would get a Eurail pass or maybe take a cruise to boost my spending.

For the first time in my life, I watch the stock market on a daily basis. Early in April I bought some stock in an airline and an RV manufacturer hit hard by covid.

Jackpot!

The stock market appears not to be infected covid.

acementhead
December 2, 2020 11:11 pm

But the predictions that the Worldwide Covid Lockdown would crash U.S. stock markets simply turned out not to be true.

Only because “The Fed” printed up trillions of dollars and gave them to themselves and their friends. As well as directly buying shares. In 2008 I think it was just hundreds of billions maybe a trillion something. This transferred wealth from cash-holders to borrowers. Theft on the grandest scale possible.

John Endicott
Reply to  acementhead
December 3, 2020 3:17 am

You are wrong and peddling fake news. The Fed didn’t “directly buy shares”. There are no individual shares of any company on the Feds balance sheet. The Fed does not have the legal authority to purchase individual stocks and would need congressional approval to start doing so. To date it has not asked for nor has it received such approval. What the Fed did buy were ETFs of corporate debt and bonds, not shares of stock.

Reply to  John Endicott
December 7, 2020 6:47 pm

The Fed expanded their credit by about $3 trillion this year, and that included about $9 billion (pocket change for the Fed) of bond ETF purchases.

John Endicott
Reply to  Richard Greene
December 8, 2020 3:11 am

Yeah, so? I already mentioned that they bought bond ETFs, you are not contradicting anything I said, nor adding anything of value to it (the point at issue was the wrong claim that the Fed was buying stocks ie “directly buying shares”). Just posting for to see yourself type?

Vincent Causey
December 2, 2020 11:40 pm

What are you talking about? Bear markets have been part of the stock market cycle since the beginning of stock markets. But today the bear market has vanished. This cannot be. At some point reality will assert itself. Reality includes a debt burden that is unsustainable, economy supported by massive injections of liquidity, a major recession and bankruptcies.

John Endicott
Reply to  Vincent Causey
December 3, 2020 3:46 am

But today the bear market has vanished

Today? yeah we are currently in a bull run, however we just had a bear several months back, so no it has not vanished, it just didn’t last long (mainly because it was a bear born out of overhyped fear – you can only overhype a fear for so long before it becomes little more than background noise).

Tom in Florida
Reply to  John Endicott
December 3, 2020 5:33 am

I think your reasoning for that short bear run is right on the money. What I found ridiculous was the reliance to make decisions based on automated programing buy/hold/sell recommendations without regard to the reality of what was going on in the world.

John Endicott
Reply to  Vincent Causey
December 3, 2020 3:52 am

Oh, and while bears have always been a part of the stock market cycle, they’re also almost always followed by bulls that have lasted longer and been stronger then the bears (hence why the stock market trend over it’s entire history has been an upward one, despite the occasional bearish dip the bulls keep climbing higher)

Editor
Reply to  John Endicott
December 3, 2020 6:53 am

Bulls and Bears ==> The charts in the essay are long term — different lengths for each, but one goes back to the 1930s….(Max at yahoo finance.)

That was intentional — each time the Bears break through the Bulls rally and come charging back, Benn that way “forever”.

It pays my bills and lets me help my kids buy houses….

u.k.(us)
Reply to  Kip Hansen
December 4, 2020 8:57 pm

@Kip,
Seems like you are gloating.
That never plays well.

Reply to  u.k.(us)
December 7, 2020 7:03 pm

Two articles on the stock market in one year?
We are doomed !

Bruce Cobb
December 3, 2020 7:13 am

There is something called the “wealth effect” which can affect the economy either negatively or positively. It’s mostly psychological, but when the market is up, and people’s portfolios consequently up as well, they are wealthier, at least on paper, so aren’t as constrained about spending as they might otherwise be. Of course, the reverse is also true. This can lead to an apparent mismatch like we have now, with a somewhat struggling economy due to Covid being buoyed by a rising market. That situation probably can’t continue for long, though, with a down economy eventually reflecting in the market. But, we now have vaccines coming out, which will in about 6 months mostly take care of the Covid problem, which will have a positive effect on our economy.
The bottom line is that for 2021, markets will very likely continue to rise. Of course, there is always a chance that something could happen that throws a monkey wrench into the works. To that I say, if you stayed in the market through the Great Recession of ’08, and did not sell, then you have the iron clad stomach for whatever the market has in store. There is no place for emotion in investing. The key is simply to “stay the course”. Steady as she goes.

Editor
Reply to  Bruce Cobb
December 3, 2020 2:29 pm

Bruce => “Stay the course” — assuming you picked a reasonable course in the first place.

Bruce Cobb
Reply to  Kip Hansen
December 4, 2020 6:59 am

The market has a funny way of culling out, over time, those who may have been unreasonable. The proof is in the pudding.

Yirgach
December 4, 2020 6:59 am

I’ve always taken the view that the market is rigged, you are playing in a casino, so we only invest in indexes, like the SPX or TIPS (Treasury Inflation Protected Securities), as well as gold and silver bullion (about 20% of the total).

Could smell the scaffolding going into place last January as the virus scare took off, sold off in late Feb and bought back in mid April. Don’t normally play games like that, but it was too good an opportunity to pass up.

Note that the indexes like SPX are regularly refreshed, with losers being replaced by current winners, so they have upward momentum. The crash weeded out a lot of virus sensitive losers. No need to chase a particular stock, especially if you are older.

We are both in our early 70’s, in good health, still working full time, have our own 401K and doing quite well. Made a lot of sacrifices over the years, but they have paid off in the long run.

The irony is that we can live and work from just about anyplace in the world, except now you can’t get there from here… We are very lucky to live in rural Vermont at this time.

John Endicott
Reply to  Yirgach
December 4, 2020 8:56 am

For inflation protection, I prefer the I-bond to the TIPS. TIPS can have negative interest rates (for example in July 2012, the 5-year TIPS had a yield at auction of around-1.2%) whereas the I-bond composite rate is guaranteed to never go below zero.

Another nice feature is that the I-bond rate is made up of a fixed component and an inflation component. The fixed component is set for the life of the bond and the inflation component changes every 6 months (and while either component could be negative, though neither have ever been so far, in calculating the composite rates, negatives are treated as zeroes).

Unfortunately the fixed component is currently fixed at 0%, so that feature is a bit of a moot point for current I-bond buyers, but something to keep in mind when the rate is bumped back up (this is not the first time the fixed rate was 0%)

One of the drawback of the I-bond is that you are limited to how much you can buy in a year ($10k in electronic bonds that you can buy direct from the treasury plus up to $5k in paper bonds which you can get for the IRS buy choosing that as the payment option for your tax return) so obviously it’s not likely to be a very big part of ones investment portfolio, but something to consider as one of many ways to diversify ones portfolio of investments.

%d bloggers like this: