CKBlog: The Market

Thursday, March 26, 2020

Three Million Jobs Lost

(Written around noon E.D.T.)

At 8:30 am this morning, the Labor Department announced that 3,280,000 people filed for initial jobless claims last week. Let that sink in. Three million people have already lost their jobs because of the shutdowns sweeping across the US and the rest of the globe. We knew it would be bad, but I saw no credible analysts expecting it would be this bad.

Within minutes, a client messaged me. “3.28 million. Let’s see what the market does.”

My response was, “I think what is more important is—what has the market done.”

As I type this, the S&P 500 Index is up 3% to 4%. More than three million people lost their job last week! How on earth is this possible?

I thought I’d take a moment to address this as I believe it is an instructive moment.

The market is a forward-looking mechanism. Millions of investors every second are placing their “bets” about the future. Minute to minute, day by day, the market may be very wrong. But over time it does a good job of pricing in the future prospects of the global economy and the ability of companies to earn profits in the future.

Today’s market action isn’t about the past, it’s about what we expect for next month, next year and the next decade. Most focus on today—but investing is about tomorrow.

Earlier this year, far before even the brightest minds were concerned about the virus’ impact on the markets, stocks began to sell off. Most of us couldn’t make sense of the severity of the sell-off. But by dropping 35% in less than 30 trading days, the market was signaling, “This is bad. This is very bad. Our economy will effectively shut down. Millions of Americans will lose their jobs ... ” It dropped before the bad news was confirmed.

So why is the market up today (so far)?

I don’t know. You don’t know. The smart people on TV don’t know. But the market is signaling that its expectations for our future is brighter today than it was yesterday (for now). Maybe it’s the Senate passing the “rescue” bill. Maybe it’s that Italy’s reported growth in deaths is slowing. Maybe it’s because people are starting to plan to get back to work. But we won’t know until we know. Once it’s known, it’s in the past.

Just like we couldn’t make sense of the sell-off, we won’t be able to make sense of the recovery in real time. Then at some point, while we marvel at how many jobs our economy added Mr. Market will have already moved on.

I will leave you with an excerpt from Warren Buffett’s 2015 essay titled “Mr. Market:”

Following Ben’s teachings, Charlie and I let our marketable equities tell us by the operating results—not by their daily, or even yearly, price quotations—whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.” The speed at which business’s success is recognized, furthermore, is not that important as a long as the company’s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.