Things are looking up

I’m not a market timer, but when market sentiment is as negative as it is now, it’s not a bad idea to look for the silver lining which may mean things are improving.

Today, new unemployment claims came in at over 500,000, the worst report since the brutal 1974 recession. After these figures are fully adjusted over the next several years, it would not surprise me to see this number close to 1,000,000.

How is that good news? Because the market is up today!

When extremely negative numbers come out about the economy and the stock market doesn’t go down by much or even goes up, it means people have fully grasped how negative things are and are starting to look for a future recovery.

That doesn’t mean the market has bottomed or that all the bad news has been announced. But, it does mean that market participants are recognizing how bad things are and are perhaps seeing that things won’t be so bad in the future.

Added to this, employment figures are a lagging indicator. That means that employment figures tend to look worst near stock market bottoms. Employment is a reaction to economic conditions, not a forecaster of them. Employment figures look bad when employers are throwing in the towel and laying people off. This is usually when the stock market begins to recover.

Why? Because the stock market is a forecasting mechanism. The price of a stock should be equal to all future cash flows. Prices shouldn’t reflect current conditions, or even conditions over the near term, but should reflect all future possibilities of a company.

That’s why the stock market tends to recover long before the economy, and why waiting for economic figures to improve is a sure fire way to miss out on huge market rallies.

I don’t know if the stock market will go up next week, month or year, but I do know that many companies are trading at depression levels even though they have bright futures.

In other words, the best bargains in 25 years can be found right now, if you can see the silver lining.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.