Why are markets going up?

Why are markets going up?

Over the past few weeks, I’ve been having this discussion with clients. Why does the market continue to rise while unemployment in the US is sitting at 40 million (the size of Canada’s population), and most businesses aren’t even close to running at 100% capacity?

Everyone has their opinions and theories as to what is going on, but the truth is, nobody truly knows. Neil DeGrasse Tyson, famed astrophysicist, has said, “The universe is under no obligation to make sense to you.” I like to re-purpose that quote and say, “The markets are under no obligation to make sense to you or me.”

Understanding Markets

The problem we all have when trying to understand the markets is we compare them to what we understand – our own financial situations. Would it make sense for us to borrow infinite amounts of money with no plans to pay it back like our governments are doing? No, of course not, therefore we assume this can’t last forever, it has to come crashing eventually.

This cognitive bias is called the intuitive heuristic. When faced with a challenging question, “does it make sense for governments to spend all this money?” we substitute it with an easier question “does it make sense for me to spend all this money?” without noticing the substitution. These mental shortcuts are there to help us make a decision when faced with impossible tasks. There’s no way you or I could even begin to start analyzing the impacts of government spending, so we simply substitute the question with an easier one to answer.

It’s a different ball game…

The problem is, governments don’t have the same rules you and I have, they can literally print money! They have multiple levers that they can pull that aren’t accessible to you and I. One of my clients told me the other day, “I need to stop looking at the market and comparing it to my business, it’s two completely different animals that are playing with different sets of rules.”

I feel your pain, I’m in the same boat as you, we all want to understand, and as humans, we love when things are rational.

  • If I jump, I will drop
  • If I run, I will get tired

In what world does it make sense to have 40 million unemployed Americans but yet have a stock market approaching all-time highs? Unfortunately, in the very irrational world of stock markets.

If you’re craving a reason here’s one of the best articles I read as to why the market keeps rising: https://thereformedbroker.com/2020/05/26/this-is-the-thing-the-bears-hate-most/

Lastly, I’ll leave you with this quote from Nick Murray:

I can’t know exactly how things are going to turn out all right.

I just know that things are going to turn out all right

Growth of $10,000 invested in the US market 30 years ago on June 8th, 1990. Today it’s worth +$167,000 despite having gone through 3 bear markets

Colin Sabourin is a Winnipeg-based investment & financial advisor with Harbourfront Wealth Management. His specialty is working with farmers who are planning to sell or transition their farms within the next 5 to 10 years. 

Disclaimer: The views expressed are those of Colin Sabourin, Certified Financial Planner, and Investment Advisor, and not necessarily those of Harbourfront Wealth Management Inc., a member of the Canadian Investor Protection Fund.