The stock market is often a puzzle, but lately it has been more difficult than usual to understand.
Winston Churchill once summed up the problem neatly:
“It is a riddle, wrapped in a mystery, inside an enigma.”
OK fine, he did not say that about the market. He was talking about Russia during World War II. But investors these days can surely relate to the sentiment.
Consider that after one of the worst declines in decades, the stock market had one of its best quarters in the three months through June, a gain of roughly 20 percent in the benchmark S&P 500 stock index. And some funds have done far better than that.
That has been wonderful for the beneficiaries of these fabulous returns. But will they continue? Quite possibly they will. And yet, it is not as though all is well with the world, or with the economy.
To the contrary, more than 555,000 people around the world have died from the coronavirus pandemic, and coronavirus cases have been surging in many parts of the United States. Until that affliction ends, it is unlikely that the economy can return to health either. Under these circumstances, investors are taking bets that may turn out to be excessively risky.
We cannot see the future better than anyone else. But our quarterly report on investing provides analysis and perspective in a perplexing time.
At current prices, stocks are fairly expensive compared with many earlier periods. The market could well be anticipating a sharp economic recovery, with a big increase in profits. But, our reporter says, if the pandemic continues, a so-called V-shaped recovery may be impossible, and current levels of exuberance may not be vindicated.
Everyone knows that it is better to buy stocks when they are cheap, but what about when they are still falling? We spoke with one fund manager who did just that in March. He bought billions in stock and said it made him queasy.
One man, who thought he knew a lot about personal finance, found that he looked at things differently. After setbacks in the current downturn, he resolved to make some changes.
In a satirical essay, our columnist says we are living in a disaster movie, but many investors do not seem to accept that.