Investors Ignore the Headlines and Keep Pushing Stocks Up



Americans are applying for jobless benefits by themillions, the economy is inrecession, and cities across the U.S. have seen some of thelargest protests in decades in response to police violence. Covid-19 deaths havetopped 110,000, and the virus is stillvery much with us, not only in the U.S. butacross the world.

And still: As of June 10, the S&P 500 was up almost 43% from its March low. Since the bottom, stocks around the world have recoveredmore than $20 trillion in value. And the tech-heavy Nasdaq has risen more than 11% in 2020. Wall Street strategists—who are as flabbergasted as the journalists—have found with vivid hindsight the obvious explanations in the numbers. They’ve pointed to asurprise uptick in jobs, interest ratesplunging, cheapvaluations on certain kinds of stocks, and short sellers beingforced to buy shares as they scramble to cover their too-pessimistic bets.

But none of that fully explains what’s happening in theminds and emotions of investors. How do you press the “buy” button at the same time you see mass protests and a painful economic shutdown? Part of the answer is that many financial pros are relatively distant from these events. But even the market hobbyists whopopulate Reddit, Stocktwits, and Twitter and the everyday individual investors who’ve openedrecord numbers of new brokerage accounts have trained themselves todisconnect stock prices from the world outside their own doors.

“I lived through the 2008 financial crisis,” says John Keh, 33, of Richmond, Calif., who’s been buying technology stocks recently on ETrade. “So I understand stocks will rebound.” He figures that in a crisis, the stock market spins on government stimulus—of which there’s plenty, for now—and the fate of big, resilient corporations.

Nobel laureate economist Robert Shiller thinks analysts don’t pay enough attention to how narratives drive markets. One story in investors’ heads is that fortunes can be made from “buying the dip.” That drove Jack McCann, a 25-year-old in England, to purchase aerospace stocks in April, after seeing what he thought might be “the biggest hit” to markets in his lifetime. He’s reaped a 24% gain.

Shiller says that thanks to the post-2008 bull run, as well as the bounce back from the Christmas trough of 2018, a V-shaped recovery has come to dominate the memories of most investors. “We were saved by our central banks—that’s the narrative right now,” the Yale professor says. “March of this year is considered similar to 2009 when the stock market bottomed out.”

That episode taught many to bifurcate their CNN-watching and market-tracking brains. Such cognitive dissonance is nothing new to Tina Byles Williams, chief executive officer of Xponance, a $10 billion asset manager in Philadelphia. In a week when her decision to buy stocks in March seemed all the more prescient, Byles Williams, who is black, penned apublic letter about the killing of George Floyd by a Minneapolis police officer. She had observed the cycle of anger, despair, and numbness among her staff. “Wall Street has been in many ways disconnected with Main Street for a while, and it’s even less connected with the black and brown Main Street,” she says. “I see them as parallel universes.”

Seshu Badrinath, a 51-year-old photographer in Avon, Conn., says many of his clients have had to push back appointments because of the coronavirus crisis. But he’s also been trading on his Robinhood account. “It’s on the back of my mind, like ‘How are stock investors making all this money with all this going on in the streets?’ ” he says. “At the same time, people are aching to find economic solutions to these problems we’re having.” He says he feels an obligation to give back: Earlier this week, he donated to the Equal Justice Initiative.

As much as the pandemic and protests have ravaged any sense of normalcy, many investors still don’t see the world diverging much from the status quo. They assume that we will take cruises again and that governments won’t let major airlines fail. That oil can’t be worthless. Many of the stocks that are soaring were hit hard by the lockdowns, and retail investors were quick to embrace them. American Airlines Group, United Airlines Holdings, and Carnival are among the most popular stocks on the Robinhood brokerage app.

Kurtis Vu, a 19-year-old student and sales associate in Huntington Beach, Calif., sounds almost philosophical explaining his call to buy cruise and airline stocks. “Looking at the news, you’re taken aback, you’re on edge,” he says. “You don’t know what’s going to happen tomorrow or the day after, but you have to take advantage of what you can.”

Then there’s the army of individual investors who have just stuck to their buy-and-hold plans, perhaps putting some money in stocks automatically with each paycheck. Paul Nolte, a portfolio manager at Kingsview Investment Management, suspects retail investors may have learned to stay put rather than worry about every peak and trough of the market. In a survey of Vanguard clients through the crash and rally, four economists found that investors’ short-term market and economic expectations turned more pessimistic after the crash, but their long-run predictions stayed the same or even improved.

It’s a popular truism that the stock market is not the economy. The point, usually, is to dismiss the importance of the S&P 500 or the Dow. But it works the other way, too: Investors are often willing to ignore what’s happening in the world they experience every day. “The stock market is just that—it’s a market for shares of companies,” says Shiller. “It does have some relation to the economy, but it’s not as strong as people think. It depends on the story, and the story’s always changing.”

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