It’s been 44 years since my alma mater, Purdue University, made it to the Final Four of the NCAA Men’s Basketball Tournament. So long, that I, of course, have no recollection. I do have recollection of many years of heart ache during March Madness, as strong Purdue teams underperformed over and over again. It’s been a tough road for us Boilermakers.
So, because I had already scheduled a day off for the eclipse, there was not much standing in the way (except some serious money costs) of me going to Arizona for the final game. I was committed over the weekend to the Special Olympics state games in Indy, but I was able to catch a late flight out of Indy on Sunday to Phoenix. I figured solar eclipses have been less rare and more predictable than Purdue playing in the finals.
My Dad, my brother Mario and nephew Will (also Purdue grads/students) were already in Arizona waiting for me when I flew in. We enjoyed some mountain biking Monday morning, then our co-worker Steve arrived from the airport to join us, and it was game time. When my brother walked out of his room to go to the game, there was not one Purdue logo or black and gold item of clothing on his body. I, on the other hand, was decked out in Purdue gear.
I immediately recognized his lack of spirit and said, “Hey, where’s your gear? You look like you’re going to dinner, not the national championship game.” He was ready for the question and responded, “Nope, I never wear Purdue colors when I go to games. If I do, they lose.” “Understood,” I replied, with no further questions required.
In the terrible Phoenix traffic on the way to the game, talk turned to online betting apps and the spreads and odds for the game. Everyone in the rented minivan agreed there seemed to be some opportunity in the numbers; Mario said I should put in a bet. But this time, I replied, “Nope, I never bet on Purdue, they never win if I do.” Everyone concurred, there would be no betting.
By now we all know how the game ended. Despite Purdue losing to an exceptional UConn team, the game itself was a great experience. To be surrounded by such amazing Boilermaker energy and excitement was so fun, and I remain extremely proud of the Purdue team for their fortitude and composure. I hope I get to do this again someday.
As I smile contemplating the hopes, rituals and superstitions before the game I can’t help but think there may be an investing lesson to be learned.
Common knowledge says the stock market is what is considered a leading indicator. A leading indicator is a data point that may be useful to predict changes in the economy before trends become evident. Other examples of leading indicators are manufacturing orders, building permits, inventory and retail sales numbers.
The logic is because investors are forward looking when valuing the stock of corporations based on expected sales and profits, stock prices have the ability to anticipate future economic conditions and provide insight into the health of the overall economy. But what about a situation where stock prices and the stock market in general seem to be rising not in anticipation of rising corporate profits, but instead in anticipation of falling near future interest rates? Or, said more simply, what about a situation like the first quarter rally of 2024?
When considering this question, we first need to start with the understanding that the principal reason interest rates would go down, is because of weakening in the overall economy, which, of course, is typically not positive for corporate sales or profits. This general economic weakness would likely first begin to manifest with rising unemployment, stagnant wages and falling inflation and then later be echoed by falling sales and profits. Why would stock investors want these trends to emerge? Would a stock market rally built on these expectations really be sustainable?
I think these questions need to be asked as we head into the second quarter. I expect investors to begin dissecting and obsessing over unemployment and inflation numbers, I also expect unemployment numbers that sound bad could lead to short term rallies, and inflation numbers showing anything but falling prices to do the same. Investors may soon have to come to grip with the possibility interest rates may not go down this year at all, and what happens after this realization sets in is not clear.
In the end it didn’t matter if Mario wore no black and gold, or I didn’t do my usual $2.00 bet on Purdue. Despite how bad we wanted to win, the results of the game were neither predictable nor controllable with our rituals. Despite how bad traders on Wall Street would like interest rates to go down this year, the same logic may apply.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
