If Businesses Are Doing So Well, Why Is the Stock Market Down?

By:  Ellis Miller, JD, Advisor

 

You may be thinking, “If businesses are doing so well, why is the stock market down?” That’s a great question!

 

This is a time of confusion. With all the cross currents in the news, our minds are swirling. We don’t know what to think. The result is that consumers now feel very pessimistic—more pessimistic than the economy would predict by itself.

 

It’s the worst in 50 years. Barry Ritholtz, CIO of Ritholtz Wealth Management, and a thinker/blogger who often appears on Bloomberg, notes that The University of Michigan Consumer Sentiment Survey now scores our mood as more dour than:

  1. Double Dip Recession of 1980-82
  2. Crash of 1987
  3. Recession of 1990
  4. Terrorist attacks of 9/11
  5. DotCom Crash of 2000-02
  6. Great Financial Crisis of 2007-09
  7. Pandemic Panic of 2020

 

So pessimistic! Of course there is bad news to justify some of it. There always is. Inflation and interest rates are climbing up, and the Federal Reserve appears willing to use a recession to push them back. And the word recession rhymes with depression and is just as emotional.

 

However, in the past, when people felt this bad the economy was far worse. Stocks were in a bear market, unemployment was higher than average or prices were rising faster than usual.

 

So let’s look at the good news. Barry Ritholtz provides a list in his blog “The Big Picture” at Ritholtz.com. Covid mortality is way down. Ten million new jobs have been created. Unemployment is extremely low. Companies are earning more than ever, and, contrary to pessimistic predictions, continue to do so. Household net worth grew $18 trillion in 2021. And we passed a major infrastructure bill.

 

So this brings us back to the question at the top: “If businesses are doing so well, why is the stock market down?” Consumers are negative not just from the economy by itself, but also that partisan politics are painting everything darker.

 

Society is being stressed. Each Political party seems to believe the other is determined to kill democracy. Neither side will give quarter to the other. We are hyper partisan and now expect a recession primarily for politics’ sake.

 

Indeed, the recession may actually come. The markets have already priced one in, but it hasn’t convincingly arrived yet. Partisan politics still control economics. This has put us into a major sentiment trough.

 

Here is the silver lining. According to J.P. Morgan’s quintessential Guide to the Markets, this is the eighth sentiment bottom since 1971. Typically these bottoms have been positive indicators, because 12 months after each one, markets were up an average of 24.9%.

 

We are all so tired of waiting for the recovery. But history shows there is a cycle, and if history is a guide there is hope. It would be fantastic to see the markets go up. And eventually they will. But we still need patience.

 

 

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

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