Previous | Watch out for unemployment scams Next | How the CARES Act impacts student loans
June 05, 2020 / Warren Hurt
The U.S. is in turmoil, yet stocks are climbing

The U.S. is in turmoil, yet stocks are climbing

By Warren Hurt

Despite a global pandemic, Great Depression-era levels of unemployment, mass demonstrations and an economy in turmoil, the stock market is booming.

Here are four reasons why:

1. Market weight skewing the index
The S&P and Nasdaq are weight-based indexes. This means that the larger the company, the greater the influence they have on the index’s performance. During this crisis, the biggest companies – Microsoft, Google, Amazon and Apple – have not suffered very much. In fact, many have even been able to take advantage of the crisis. If the biggest companies grow, the index follows because the top 10 companies have a bigger impact on S&P 500 performance than the bottom 300. To be sure, the market would look much different if the five biggest companies in the S&P 500 were airlines and hotels.
stock market chart
2. The market is pricing in a quick recovery
At these levels, investors can’t believe that Depression-level economic indicators will last. There are some reasons to hold out this hope. For instance, Delta Airlines just negotiated a deal with their pilots’ union in which they agreed to keep all pilots but cut wages. At full operations, there is a significant pilot shortage. At long-term reduced operations, there would be plenty of pilots. Delta’s decision to keep the pilots says they have not given up hope on a relatively quick recovery.

3. Stimulus has supported incomes
We have delivered fiscal and monetary stimulus at a level never even before imagined. Surveys are showing that nearly one half of unemployment recipients are making more while unemployed than while working their regular jobs. It appears that the stimulus money is doing its job – at least so far.

4. Lack of investment options
Simply put, investors don’t really have anywhere else to take their money. With cash paying at (or below) zero and the 10-year U.S. Treasury paying less than 0.70 percent, how can anyone invest in those assets for the long term?

Bottom line
Of course, there’s no guarantee this market rally will last. It’s possible that the market has gotten ahead of itself, but it also appears that the gradual reopening of the country is occurring without major setback. The quicker we can get back to normal, the less damage we will see to the economy and investment portfolios. 

Warren Hurt is the vice president, chief investment officer at F&M Trust

Recent Articles
Interest Rates 101
Interest Rates 101

Interest Rates 101

September 24, 2020 / David Bimler

Work-from-home scams and how to avoid them
Work-from-home scams and how to avoid them

Work-from-home scams and how to avoid them

September 10, 2020 / Ray Wills

Unsecured or secured loans: What's best for you?
Unsecured or secured loans: What's best for you?

Unsecured or secured loans: What's best for you?

August 24, 2020 / Dave Bimler

A GRAT in action
A GRAT in action

A GRAT in action

August 17, 2020 / The Merrill Anderson Company

Read this before cashing out your retirement account due to COVID-19
Read this before cashing out your retirement account due to COVID-19

Read this before cashing out your retirement account due to COVID-19

August 11, 2020 / Beth Reeser

Seven ways to save money by going green
Seven ways to save money by going green

Seven ways to save money by going green

July 23, 2020 / Fallon Finnegan

Three mistakes in portability planning
Three mistakes in portability planning

Three mistakes in portability planning

July 16, 2020 / The Merrill Anderson Company

How to spot elder financial abuse
How to spot elder financial abuse

How to spot elder financial abuse

July 09, 2020 / Ray Wills

Credit reports are now free once a week
Credit reports are now free once a week

Credit reports are now free once a week

July 02, 2020 / Ray Wills

Join our e-newsletter

Sign up for our e-newsletter to get new content each month.

NOTICE: YOU ARE LEAVING F&M TRUST!

You are now leaving the F&M Trust website. Links to third-party sites are provided for your convenience. Such sites are not within our control and may not follow the same privacy, security or accessibility standards as ours. F&M Trust neither endorses nor guarantees offerings of the third-party providers, nor is F&M Trust responsible for the security, content or availability of third-party sites, their partners or advertisers.