Why is the Market Rising?
I know it's been puzzling to many of you as you have watched the equity markets rise despite the COVID-19 impact on the economy as well as social unrest. It seems to make no sense that if the news is so bad, markets rise.
Remember, markets are a combination of data and sentiment. And while the data currently is not good, the sentiment has shifted towards focusing on a vaccine being available in the first quarter of 2021. Markets are forward-looking not obsessing on current data. The bet equity investors are making is that the economy will recover after treatment and vaccines are available.
Focus on Looking Through the Headlines
This perspective does not surprise us which is why we were so focused on doing our best to help DWM clients stay focused on the long term. It's very easy to react short term when news is as horrible as it was. We believe the reactions that are based on emotion can be counterproductive and not helpful in moving towards a long-term financial plan.
Though the markets have rallied, remember that at any time the market could dip again 10% or 20% and may even retest the March lows. The key to survive this type of volatility is to invest in assets that you have confidence in long-term that will survive short term fluctuation. This is the focus of DWM and our entire Research team.
On this week’s video update, I discuss the following:
- Why is the equity market rallying?
- Economic data short and long term.
- How much of the market is moving higher?
- What are the risks?
- Is there a risk of market double dip?
- What should my investment response be to a rallying market?