Why Does Bad Economic News Mean Major Market Gains?

The economy isn’t looking so good.

In fact, I’d argue it’s beginning to look quite miserable.

Should investors care? No.

In fact, if anything, the worse the economy is… the better investors will likely fair.

I know it’s counterintuitive but, we now live in an upside down world. The sooner we come to terms with it, the more money we’ll make. (Though, as always, I encourage diversification into hard assets like real estate, gold and other options.)

Market Gains on Bad Economic News

U.S. stocks managed a minor gain on Thursday to close at a new record. Tech shares led the way with S&P 500 Index rising slightly more than one point, while the Nasdaq indexes rose 0.5%.

The gains came despite news that more than 900,000 people filed for unemployment benefits in the latest week.

The separation between the market and economic reality is a growing trend. Investors are seemingly okay with bad economic news amid the promise that it promises more stimulus from government.

An “Alice in Wonderland” Market

We’re living in an “Alice in Wonderland” kind of environment. Black is white. White is black. Up is Down and down is up.

As the famed writer Lewis Carroll wrote,

“If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it it isn’t. And contrary wise, what is, it would be. And what it wouldn’t be, it would. You see?”

Yes. We see. The markets will move higher with the prospect of BAD economic news on the horizon .. because the Fed, and now the administration, House, and Senate are there to lend a hand.

And thus, as Alice might say, so it is.

Game On

While my instinct is to tell investors to retreat in an environment such as this… the reality is? It’s GAME ON.

As long as the federal reserve is intent to print…as long as the Treasury Department wants a 50-year bond…as long as President Biden signals he’s got more where that $1.9 trillion came from … who am I to argue?

The job market is lousy, the U.S. dollar is getting killed, and our federal government is ready to print money it doesn’t have.

What’s an Investor to Do?

First of all, know that realists are punished in this environment. I don’t mean to sound overly pessimistic but, it’s the truth. Those of us that want strong economic fundamental to match a strong market can kiss those days goodbye.

Sure. At some point this will catch up with the market. Maybe. Theoretically.

In the meantime, dare I say… Enjoy?

Markets will continue higher so long as investors are willing to see through the  fundamentals to the promise land of more stimulus.

And this isn’t just just any stimulus.

Fingers crossed.

 

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