Bull Market Confusion

June 24, 2020

By: Hanson Feng

Yes, a Worldwide Bull Market has started. Yes, I'm equally as confused. Yes, the stock market only cares about money. 

It’s June 3, 2020; I woke up and opened my usual apps, Instagram, outlook, and apple stocks. It’s been three and a half months of an upward trend for the S&P 500 (the largest composite index covering the American Stock market). I was happy, I held shares in a composite index fund based on the S&P 500. But I was confused, COVID-19 has ravaged society, a large wave of bad loans were projected to hit both retail and corporate bank’s balance sheet, and along with that, a wave of protests across North America and Europe. Why is the market still up? 
I There’s no ethics or social justice to trading. It’s all about money and gains.

Earlier that week I was on LinkedIn with the vast majority of the accounts I follow being big wall street firms in Investment Banking, Consulting, and well-known Bay Street Banks. All of them coming out with formal statements on the George Floyd incident quoting their organization’s inclusivity policy and how inclusion is their strength; truly an external communication manager’s easiest post. 

Let’s be clear, the stock market doesn’t care about injustice or social issues it only values the economy going forward, not the economy of today. There are lessons to be learned here: 

LESSON #1: You are never buying into the market for the economy of today but the outlook of tomorrow. An example of this is Tesla, WeWork, and Spotify. They’re all popular tech start-ups that have investors going off with investments even though they have made zero profit to date, it’s the future outlook of what WeWork looks like to investors.

LESSON #2: The stock market isn’t what it used to be. Back then everyone was on the same playing field, the government wasn’t as involved, trades were logged by a human and to trade you had to have a representative on the trading floor running and casting your trades as the numbers flashed on the board. Let’s go back to that S&P 500 composite ETF fund I own, it is “professionally managed” by a machine with AI. It’s programmed to know how the market swayed in the past and can achieve orders within milliseconds in order to achieve gains. This isn’t a total loss for personal investors like you and me, it simply means that penny stocks and short selling are far riskier unless your finger can press the buy/ sell button at any point in the day.

LESSON #3: The government will get involved if it needs to. A large reason why the market is trending upwards is due to a mass wave of bond purchases by central banks in order to stabilize markets. The fed has said they have not put a limit or budget in place of bond purchasing. While yes, this has dampened the bond market and brought down the returns on bonds, stocks have skyrocketed. Remember, bonds and stocks are typically in an inverse relationship.

LESSON #4: Before the rise of SRI (Socially Responsible Investments), ethics was truly the last concern on Wall Street and Bay Street. It was about money, money, and more money. While I personally buy into SRI portfolios (which statistically perform better), most investors don’t care if their money is coming from a bank that undermines the poor, a Tabaco company whose profits come from killing peoples lungs, or a health care company that charges obscene amounts for an x-ray. Money is money in their eyes.