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What The Hell Is The Stock Market Doing?

Cullen Roche profile picture
Cullen Roche


  • The stock market just had its best month since 1987 and the economy just had one of its worst months ever.
  • It’s not remotely surprising to me that the stock market has recovered because it’s now trying to guess when other variables recover.
  • If they do recover then there’s a very real chance you’re going to see record profits in 2021 and 2022.

The stock market just had its best month since 1987. And the economy just had one of its worst months ever. How is this possible? What is going on? Is it all a conspiracy by the Fed? Are stock traders just insane? All of the above? What do we make of all this? Let’s talk about it.

First, the stock market is forward looking. So, while we see everything for what it is, the stock market is looking for what it might become. This ebbs and flows across time. The stock market’s fluctuations are a series of guesses about future outcomes. Warren Buffett always describes this as “Mr. Market”, a man (yes, a man) who is bi-polar, constantly screaming out his opinions in a manic way. Sometimes right, sometimes wrong, but never in doubt.

To better understand how the stock market thinks let’s review the 2009 recovery. In November of 2009, when the financial outlook still looks dreary, the stock market was up 53% year over year while the economy was up 1% year over year. The stock market is anticipating years of future growth. In that case, the market was obviously right. But this is the way it will always look. The stock market will always sniff out a recovery before the data shows it because people are setting prices based on what they expect to happen, not what is actually happening.

But here’s the big thing the market is grappling with right now. As I noted in my piece saying this wasn’t the next Great Depression, the government’s response has been massive here. This is the kicker for the stock market:

Corporate Profits = Investment + Dividends/Buybacks – Household Saving – Government Saving – Rest of World Saving

This is the Kalecki Profits equation. And it’s fairly

This article was written by

Cullen Roche profile picture
Mr. Roche is the founder of Discipline Funds, a provider of multi-asset low cost ETFs and financial advisory services. To learn more about Discipline Funds please see:https://disciplinefunds.com/

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