It’s because stock markets are forward-looking. Meaning today’s prices reflect market participants’ combined expectations of future economic developments, not specifically what is happening right here right now. Remember stock is ownership in a company; holding stock entitles the stockholder to future earnings (and to participate in capital appreciation of the company), so investors care less about today and more about tomorrow.
Let’s go back to the end of February / beginning of March when we started to get a better understanding of what could happen with a novel coronavirus outbreak, and what could happen if we do something about it now or if we don’t do anything about it. It was a lot of speculation, dealing with an unknown, and preparing for the worst while hoping for the best. And the stock market and our retirement portfolios suffered drastically because of it, dropping 15% - 25% (depending on your allocation to stock) over just a couple weeks. Comparing now to then, investors believe better days are ahead.
Furthermore, stock markets are the first to react to good and bad news because it’s so easy for millions of market participants to put money into the system or take money out. Any type of unrest or uncertainty and the stock market quickly and easily goes down; likewise, any positive news, or even times when bad news isn’t as bad as expected and the stock market quickly and easily goes up. Remember, markets move quickly!
With that understanding, our approach is to use the stock market as it aligns with our personal financial and retirement goals. Whether economic uncertainty is prevalent today or a better economic outlook is popular now, whatever the case, we shouldn’t let the expectations of other market participants influence our personal decisions. We need to filter out the noise and not let it impact us nor our retirement portfolios. We use stock markets to align with our goals and our expectations, not the goals nor expectations of others.