Confusion Amid the Rally

Beyond COVID-19 updates, current headlines are littered with reference to underwhelming economic data, such as spiking unemployment and suffering corporate profitability. During this period, equity markets have seen one of their best stretches of historical performance, which is leaving many investors puzzled. A recent article in the L.A. Times speaks to this phenomenon and attempts to answer why this is occurring. Columnist Michael Hiltzik reminds readers that markets are forward looking, fixated on how economies and companies will fare as far out as several years from now, unconcerned about the past. It was widely expected that unemployment figures would reach historical levels given entire economies have shut down to control the spread of COVID-19. Upon release, the data only confirmed what most investors anticipated. Given that market behaviour does not track presumed narratives based solely on economic data, a diversified portfolio is the best way to protect investors from the full impact of unanticipated movements contrary to one’s predictions.