Although There Is Chaos on the Streets, the Stock Market Is Up

The world is trying to deal with the effects of a pandemic. As well as the pandemic, the US is also facing racial strife and political upheaval. Nevertheless, even with all this chaos, the stock market continues to rise. Although this is 2020, the year somewhat echoes the events of 1968.

Both years, 1968 and 2020, featured unheard-of levels of tumult, and both years may wind up being good years for investors. Although the market has yet to make up all its lost ground, the trend over the last couple of months is higher.

Some are finding it difficult to reconcile this disconnect, but it should not be all that big a surprise. Computers that run on algorithms are increasingly driving today’s market. In theory, at least, investors always are looking ahead. There is a tendency for investors to look beyond the news of the day.

The Market Has Little Emotion

It is the nature of the market to appear lacking in emotion, heartless, lacking empathy, and care. Quincy Krosby, the chief market strategist of Prudential Financial, went on to say that “algorithms do not show even a shred of empathy, they are not supposed to.”

Still, the market does react one way or another on a headline. The headline can be anything. It can be directly related to the market, economic data point, or geopolitical event.

Currently, any news of vaccines or potential therapeutics for the coronavirus tends to set the market afire, hoping that the pandemic that has wreaked havoc with the country and its economic infrastructure can be thwarted. On the other hand, the market appears to be somewhat discounting awful developments in unemployment, retail sales, and corporate earnings.

It would have been logical to think that the current riots and protests coming on the heels of the death of George Floyd would have had an impact on the market. This is not the case. Earlier in the week, the market gained, albeit a small gain, while the rest of the country dealt with cleaning up the aftermath of the riots.

There are many reasons to be bearish on risk assets, such as corporate debt and stocks. However, history has shown that markets look through tumultuous times. “They have for years,” notes Nicholas Colas of DataTrek Research, who goes on to say, “ that might seem counterintuitive, but it is true.”

Death, Destruction, Disease

Cast back to 1968. Attorney General Robert Kennedy and the Rev. Martin Luther King were both assassinated. 1968 saw the Tet Offensive in Vietnam. 1968 also saw a highly divisive presidential election between Richard Nixon and Huber Humphrey. The nation was torn by protests, highlighted by the raised fist salute at the Summer Olympics in Mexico City. On top of it, was the “Hong Kong Flu” pandemic that killed millions globally.

Although 1968 was tumultuous, the equity markets did well. Although the S&P 500 dropped in the first quarter, the market rallied, ending 1968 up nearly eight percent.

Year to date, 2020, sees the market down by over five percent. However, having rallied 36 percent since the March low has investors thinking another headline-defying year may be on the horizon.