Over the last 3 months, our economy has taken a hit due to the Coronavirus outbreak. Millions of Americans are unemployed and businesses all around the country are in danger of shutting their doors. Even so, the stock market has recently rebounded from its lows. What is the difference between what has been happening on Main Street and Wall Street?
Read the full transcript below.
“The market tends to be a forward looking indicator. It’s looking out not a month or two, but several quarters in advance. ”
Transcript
Steve Alverson: Hey guys, Steve Alverson and Barry McCall here with McCall & Associates. Barry, we've received several phone calls in regards to the difference between what's happening on Main Street and Wall Street. Recently, over 40 million people have applied for unemployment, and though those numbers weekly are declining, there's still a lot of people that aren't working. But if you look at your statements, the markets seem to be performing pretty well. What do you think the difference is?
Barry McCall: Steve, it's a interesting phenomenon to look at that, because there is such a dichotomy between what's going on and what you see in the nightly news in terms of the market and in your statement. I saw recently the markets were up 17% this quarter, and yet they're still some 40 million people unemployed.
I think a couple of things to remember is that if the total employment base is 160+ million, that means there are 120 million people that are still working. So yes, it's difficult for the 40 million that are out of work, but there's still a lot of people that are working.
Now, we've also seen in the earnings of companies that sell stuff, the stuff that we need to live on, they've done very well. You talk about a Walmart or a Home Depot or a Dollar General.
Steve: Tractor Supply.
Barry: Tractor Supply was up significantly. As we think with Wall Street, what we have to remember, seeing the market, is two things.
One is that the market tends to be a forward looking indicator. It's looking out not a month or two, but several quarters in advance. And I think what it is saying is that there's going to be a healthy recovery, and it's probably going to happen sooner than we think.
The other thing to keep in mind, though, is especially if people are evaluating, when they say the market, they talk about the S&P 500. That's a cap weighted index. In other words, it means that the larger companies have a more significant influence on the direction of that index. Larger companies in there are technology companies by and large, and the technology companies have continued to do very well through the economic shutdown. That accounts for it as well.
So I think what it's saying is that it's anticipating the future, and it anticipates that future to be good. It's not saying today is bad. Therefore, the market's going to be bad today, but it's looking to the future. I think that would be primarily why there would be such a difference between what people realize and what we see in the headlines in terms of unemployment and economic data.