I enjoy reading Tom Clancy novels. I’ve always appreciated the way Clancy’s plots connect disparate micro-events and small trends and pull them into a macro scenario which usually involves an international conflict of some sort.
Some of Clancy’s micro-events are deliberate acts, some are random occurrences, some are unintended consequences of good intentions gone wrong. Always as plots develop, however, these seemingly unrelated events build into a crescendo of unavoidable danger for the book’s heroes to face.
I feel like we could be living a stock market-based version of a Clancy novel right now. As someone who has been investing for a long time, I see a number of disparate influences coming together to create a unique market environment which only comes around about once in a generation.
On the micro-trends side of the plot, we have Zoom calls and football season. Now, if you're saying “Marc, what the heck do video conference calls and football have to do with stocks?” I certainly understand. But hear me out.
First let me say, before March I had never been on a Zoom call; now I’m on five a week. In my opinion, Zoom calls, the term being used as a catch-all phrase for video conferencing, combined with on-going COVID distancing, has created an environment which has made it easier for companies to extend their work-at-home policies far longer than would have been possible even a year ago. Also, from my personal experience during the COVID quarantine, (sorry to all you home workers out there) work-at-home leaves a bit more time in the day for, shall we say, “distraction.”
Yeah, I know, all our home workers are busy at home with emails, conference calls, and client service, but in between these tasks might we assume perhaps a TV is on in the background (on mute of course), and might we also assume the TV could be on one of the stock market channels? Perhaps creating the feeling of productivity as our home worker tracks business news? Maybe.
But what about the football? Isn’t football on the bubble this year because of COVID? It sure is. Which is leaving a gaping hole in the lives of many young male professionals, not necessarily because they miss the games, as much as they miss their fantasy football teams and betting on football on half a dozen smartphone betting apps.
If only there was some way to marry the daily work-at-home free time, desire to spend more time learning about “investing” and the boredom created by the lack of football. If only there was a way to “play” stocks on a smartphone. Enter the Robinhood trading app, bringing a whole new generation of investors into stocks, and the plot starts to come together.
So, if our disparate micro trends are Zoom calls and football, what are the macro events serving as the backdrop for this story? Well, COVID of course, and the unprecedented amount of liquidity injected into the economy to stabilize the business cycle and keep unemployment low.
I envision this liquidity, aka new money, comprised of government stimulus and central bank support of the credit markets, as a series of streams, creeks, and rivers flowing toward the financial markets. Almost like rainwater, what starts as unemployment checks, Small Business Association disaster relief, and Paycheck Protection loans ends up as investors with excess cash they can now invest in stocks. Not directly of course, but like a back yard pond, as the reservoirs of cash reserves fill up the flow toward financial assets becomes inevitable.
With the micro, comprised of technology and work style-related behavior changes, and the macro, consisting of government and central bank activity colliding, the stage is set. The result is an exciting, frothy stock market steeped in speculative action.
Now, to be clear, speculation is a distinctly different pursuit from investing. Occasionally, however, about once a generation in my experience, speculation rules the market. During these types of periods the stock market disconnects from the economy to the upside. Eventually either the economy rises to meet the market, or the opposite happens, which ends the cycle. In the meantime, let’s enjoy the developing plot.
Opinions are solely the writer's and are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing involves risk, including loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and a registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
