Is the Market Ignoring Negative Economic Data?

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For some investors, it might feel like the market is out of sync with the economic data we're receiving.

So, is the market ignoring negative economic data or is there truly a disconnect?

Kenny Polcari, SlateStone's senior wealth strategist, joined TheStreet's Katherine Ross to weigh in on the market and give investors advice. 

Video Transcript:

Katherine Ross: We're in the middle of a pandemic and an economic shutdown, and yet, the markets closed at highs for the month? So, what is going on with this scenario, and what do investors need to know? Well, joining me today is Kenny Polcari, Senior Market Strategist with SlateStone Wealth. Kenny, why, despite economic data that has pointed to how hard the economic is being hit. Did we see markets push highs in April?

Kenny Polcari: So I know it sounds a little bit illogical considering what we all are living in and what we all see in terms of macro-data, and kinda the conversation in view goin' forward, but the fact is we had such a swift sell-off that the market had a lot of damage done to it internally which created volatility. But then, as we started to move into April, it was the beginning of earning season, and they were talking about the earnings not necessarily being as bad as they originally thought. That yes, they expected them to be lower. But it looked like as long as the economy was gonna get back together and we were gonna open up again that it was gonna be a short disruption to the market, and so, therefore, investors in the market are always anticipating. The market's always trading out what it sees four and five months out. So in fact, in April it's really looking at what's gonna happen in August and September. And by then, the conversation was that things should've been better. In fact, we saw the market rally into the end of April. We saw as earning season started, there were not those disasters all along the way that we thought were gonna happen. In addition, even though the macro-data continued to be weak, which we all expected, The Fed came right out. They stood right there. They announced new programs. The governor announced new programs. Everyone's around there supported. The ECB, The Reserve Bank of Australia, the Debaga, Japan. All central banks that are coming together to support not only their economies but in fact then, the global economy. And so, therefore, the market reacts on that 'cause it sees brighter days ahead which is what took us probably three-quarters of the way through April. And then what you had was as you move into the last week, you always have that window dressing portfolio reallocation as mutual funds and other asset managers have to mark their books into the market which was yesterday. So today, as you'll see, the market's actually a little bit weaker. Kinda taking back a lot of that fluff that was probably well ahead of itself.

Katherine Ross: What's your advice to younger investors who are feeling disheartened or confused about they perceive as a disconnect between the economy and the stock market?

Kenny Polcari: Well listen, whether you're a young investor who perceives a disconnect or someone my age who perceives the disconnect, the fact is there is a little bit of a disconnect because you can't fight The Fed or any other central bank around the world, especially when they all act in concert together, right. And so, what you shouldn't get, is you shouldn't get completely disoriented because ultimately, the market will readjust and will revalue, and will find it's proper place. But like I said, we had such a swift downdraft in March that we broke a lot of technical, kind of, internal levels which is gonna cause the market to keep having this volatility and make it appear as if on one day it's well ahead of itself when the next day, in fact, it corrects. And like I said, today maybe in April, it felt like it was ahead of itself. I would agree. I thought I was ahead of itself. And today we're correcting for that, right. And so, the market's trying to find it's natural value, but then what happens, and what we've seen happen, as companies are reporting earnings, a lot of them are not reporting forward guidance. A lot of them have said, we cannot give you proper guidance because we're still unsure of the length and the dept of this coronavirus. I think you're gonna start to see that change when we're in May. I think as this calms down, you're gonna start to see companies that are gonna kinda put their foot in the water and start to try to guide investors as well as analysts as we move into the summer. I would say, don't be discouraged, don't be disrupted. Make a plan, have a plan, stick to the plan.

Katherine Ross: Kenny, thank you as always for all of your advice and your knowledge on the market. I'm Katherine Ross, and we will see you next time.

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