stock questions: #3

 Q:  Is the stock market usually governed by the macro level economy, or the specific company?  I feel like if I look at my stock charts at a glance on any given day, they all pretty much go up and down at about the same proportion and around the same exact times, as the whole market moves up or down.  Today, Disney went up for a bit on news it’s Chinese Park would soon reopen, but then went down like everything else.  It seems like 90% of stock movement has been the macro conditions and maybe 10% information specific to any individual stock.  But wasn’t sure if that was normal, or just more due to all the recent instability and uncertainty.

One of my favorite analogies for portfolio management is that it’s like sailing a small boat across the Atlantic. If the weather is favorable, what counts is the sun deck, the food and how fast the boat can go. If a gigantic hurricane rolls in, however, none of the amenities matter that much. What really counts is being in a vessel that, however pedestrian, just won’t sink.

My weather report for today is that we’re past the worst, but are still in stormy seas.

We’re also in an unusually complex economic situation:

–we’re suffering from two big external stocks: the rise in the oil price stemming from the invasion of Ukraine, and the continuing supply chain issues stemming from the pandemic, and

–we’re in the process of withdrawing the extraordinary fiscal and monetary stimulus applied by the government to offset the negative effects of the pandemic. This itself has been complicated by two factors: Trump’s head-in-the-sand decision to pretend covid wasn’t happening and Biden’s fight-the-last-war decision to press for far more stimulus than economic experts recommended

–on a more longer-term conceptual level, the trend growth rate of GDP has been shrinking, due to a declining rate of workforce growth and lack of productivity gains.

The result of all this is that we have less clarity about the weather than usual.

What I think we can say:

–the stock market typically leads the economy by about six months, both on the way up and on the way down, which makes it historically the most accurate of leading economic indicators

–in a bull market, investors would already be starting to factor into today’s prices their expectations for earnings growth in 2023. I don’t see that happening.

–in a bear market, in contrast, investors continue to discount today’s news over and over again. That’s what you’re describing, and what I see, as well.

As to DIS, I don’t know the company well any more. It’s very difficult for any stock to move contrary to the current overall market mood. The specific issue I’d guess DIS has is to find a new source of growth to offset the continuing decline in ESPN. This itself isn’t new. The recent questioning of the prospects for Disney+ to be that new thing is.

Leave a Reply

%d bloggers like this: