It’s the day after Russia launched a full-scale invasion of Ukraine and the Dow Is up almost 2%. Confused? We don’t blame you.
How could the potential for war, high energy costs, more supply chain issues, and loss of commerce be good for the global economy?
The answer? It isn’t… and that’s exactly what the market wants to see.
If all these bad things happen and the global economy slows, then maybe this means that the Federal reserve won’t be as aggressive with rate hikes this year. That’s the real motive behind these peculiar moves.
So, a bad economy is good for the markets? In the short term it can seem this way. We’ve seen dislocations between the market and the economy before. Just months ago we saw stocks skyrocketing with historic unemployment numbers.
You also have to remember that are markets are largely made up of a few huge companies. Apple, Microsoft, Amazon, and Google still make up 20% of the S&P 500 and the Dow Jones is only 30 companies. So, these indexes hardly represent the intricacies of the actual American economy.
This separation between economy and financial markets is very confusing, but important to keep in mind as an investor. With situations in flux like they are right now, diversification and discipline continue to be our greatest tools for making money over time.