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Stock markets can be mind boggling

Stock markets can be mind boggling

July 23, 2020

Logic would suggest that there is a correlation between economic prosperity and positive outcomes for stocks, writes Peter Watson.

COVID-19 economic doom and gloom persist, yet stock market values are rising at a record pace.

Why did this happen? As it turns out, sometimes the stock market does not behave with how you anticipate.

We are amid COVID-19 and its huge negative impact on the world economy. Many businesses and industries have failed, erasing billions of dollars of value.

Yet the stock markets continued to defy gravity.

US stocks indexes as of June 30 recorded their best quarter in the last 20 years, as reported by MarketWatch.

Put another way, stocks have had their best quarterly results of the 21st-century.

How is it possible to have economic carnage on one hand and booming stock markets on the other?

The vicious cycle for many investors is to invest some of their funds in stocks, with the idea they are doing it for the long term. Then faced with economic bad news, and after their stocks have lost value, they sell.

The market then recovers while the investors’ funds are still in cash. The investor loses money, faces emotional frustration and, in many cases, does not want to return to investing in stocks.

That is a hard concept for to accept. During times of economic uncertainty and economic fear it is tempting for investors to give up on stocks and leave their money in cash.

Unfortunately, because of prevailing low interest rates there is not much upside in leaving your money in the bank or investing in bonds or other fixed income options.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments.