‘The time to buy is when there’s blood in the streets.’
You’ve probably heard or seen this quote a few times if you’re a market devotee. It is a favourite catch cry of the contrarian investor.
The implication is that the best time to invest is when everyone else isn’t. Usually due to financial bloodshed, rather than actual bloodshed.
At least, that’s what you’d think…
Right now, the US has the world’s full attention. Sadly, it’s for all the wrong reasons.
Riots, looting, violence — the US is tearing itself apart. An uprising that is dividing the country and its people. One that has many hallmarks of the past. More on that in a moment.
Point is, things are ugly. Or rather, they’re even uglier.
This was seemingly the last thing the country needed. After all, we’re still in the midst of a global pandemic. One that has hit the US harder than most.
COVID-19 has been a health and economic crisis like no other. One that has left thousands dead and millions more jobless.
Despite all this turmoil and pain though, US stock markets are rising.
There is literally blood in the streets, and investors are lapping it up. They are buying like everything is completely fine. Seemingly ignoring the riots altogether.
At face value that may seem bizarre. But what if I told you there is a precedent for this kind of thing?
History of apathy
It is hard not to look at the riots today and compare them to similar events of the past.
1968 for example, is infamous for its violence and revolt. A time when race relations sank to their lowest since the US civil war.
It was the year both Martin Luther King and Robert Kennedy were assassinated. Events that forced the US to pass the Civil Rights Act of 1968.
Needless to say, things were far worse than they are now. Not that that makes the events unfolding right now any less dramatic. If anything, it makes it all the more disappointing.
Politics and cultural issues aside though, we’re here to discuss markets. And at the start of 1968, from January to March, the S&P 500 fell by 9%.
But…by the end of the year it had rallied 24%. Defying the violence, the riots, and the suffering.
This isn’t some kind of outlier either.
The death of Rodney King in 1992 did little to shake markets as well. As did the shooting of Michael Brown in 2014. Both of which resulted in riots and unrest of their own.
You can look back at almost any time of social disorder and see an unfazed market.
Which begs the question, is the stock market really that callous?
The short answer is yes.
At the end of the day, markets care most about what will affect them. They are inherently narcissistic in that regard. Whether you want to argue if that’s good or bad is up to you.
Unless the US undergoes some kind of serious societal reform, stocks will simply shrug off this violence. There is blood in the street, so it is time to buy.
Indeed, as my colleague Ryan Dinse pointed out yesterday, the market has more important things to think about. Like all the money the Fed keeps pouring into the system. Something that may be of far greater concern in terms of structural change.
In the short term though, none of this unrest has yet to be bad for markets. In fact, I dare say it could even be bullish for stocks…
Spend the crisis away
At the end of the day, policy is what will matter most for markets.
Policy comes from the politicians though. And unlike markets, they are influenced by all this turmoil. Especially with election day just five months away.
We’ve already seen both Trump and Biden show their hands. Not exactly picking side, but certainly drawing lines.
There is no doubt in my mind that both of them will use this event for political gain. Whether or not it is sincere is up to the American voters.
In the meantime though, amidst all the fighting, talks of a second round of stimulus have been on the table. Americans could be receiving another US$1,200 cheque in the mail, or some other form of ‘free’ money.
Up until last week though, it was unclear whether such a plan would go ahead. The fate of the stimulus looked to be sitting on the fence, waiting to sway one way or the other.
These riots, I expect, will now force their hand.
Both Republicans and Democrats will be vying to win people over. And what better way to do so than to hand people ‘free’ money.
I’m not going to tell you that it is a solution to the deeper problems in the US. Because the reality is, it isn’t.
But, in a pinch, it is a surefire way to placate people. And at the end of the day, that is all the politicians really need to secure power.
It may not be sustainable or healthy for the country, but the stock market will love it. And for stock investors, that may mean it’s time to think about buying even as the blood continues to spill.
Editor, Money Morning
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