hi I'm Jimmy in this video we're gonna take a quick look at where the US
economy stands and try to see if it makes sense for us to invest now or wait
for another stock market crash because I think the real question is why does the
stock market seem to be so disconnected from their actual
troubles happening right now in the economy okay so first off let's start
with looking at the GDP of the United States and as we could see with the most
recent GDP number well the first quarter was way negative coming in at about
negative 4.8% and jessa were all in the same page GDP is short for a gross
domestic product and it shows the final market value of the goods and services
produced in a country now we may notice that the first quarter of 2020 GDP
numbers isn't quite as bad as it got in the Great Recession that came in at a
low of negative eight point four percent but I do think it's very important to
point out a couple of things first according to economists this number was
slightly worse than consensus estimates the expectations were that first quarter
GDP would be at about the negative 4 percent level so this number came in a
little bit worse than that and on top of that there was a big drop-off in imports
which make GDP numbers look a little bit better but I think that the real concern
is that the u.s. mostly went into lockdown from the coronavirus during the
month of March which means that this drop-off in GDP
only really accounts for one month of lockdown and it's expected that the
second quarter GDP numbers are going to be way worse than this and that's
because the lockdown has been in place for all of April and even as parts of
the economy begin to open up now well it's going to take time for them to get
up and running it's this is going to happen fairly slowly and it will be at
least in my opinion well beyond the second quarter of 2020 before the if the
economy is fully back up and moving again so the next question is what do we
think it's gonna happen to second quarter GDP and it's still a bit early
to tell we're still a few months before the second quarter numbers actually come
out but estimates that I've seen so far have the second quarter GDP numbers
coming in at negative 35 sent maybe worse so clearly this would
be a terrible number if it ends up anywhere near that level now like I said
it's still early so we can expect for those estimates to change as more
economic information comes out and that economists are able to adjust their
estimates and one of the key pieces of information that are accounted for in
this is what's happening with jobs so this is a long-term chart of initial
jobless claims going back to 1995 and I pulled down this longer-term chart
simply to illustrate how drastic the current spike is in jobless claims so
this is the tech bubble and then we have the Great Recession coming after that
and clearly compared to the Great Recession this current jump is crazy
high now we can switch to a slightly shorter slightly shorter term chart so
we can better look at what's actually happening with jobless claims and if
we're curious the term amount of jobs lost during this time period
well that's during the past six weeks well that's been about 30 million jobs
lost so clearly this is going to have a lasting impact on the economy and as the
economy gradually gets up and running again how fast do we think these jobs
will come back surely some of them will come back once the economy opens back up
again but many won't and it's those jobs that won't that are likely to lead for
the road to recovery it's likely to make the road to recovery a long one and this
brings us to the stock market and as we could see I'm going to use the S&P 500
to broadly represent the stock market in general and clearly the stock market
reacted to the economic problems caused by the coronavirus itself and the US
economy and much of the global economy and Turing into a block downs in general
this pullback itself saw the stock market down about 33 percent but since
then the stock market has seen a gradual recovery in fact since the bounce off of
the bottom the stock market is up about 30 percent off of the bottom and our
question is why or how could the stock market be up so much I mean is the stock
market just completely ignoring the fact that jobless claims are getting so much
worse each week we I saw that GDP is getting bad and going
to get way worse we already saw that as well and broadly speaking I think that
the economy as a whole I think that most people are expecting that an economic
recovery won't happen overnight it's likely to be a far more gradual recovery
so let's run through a possible reason why I think the stock market could be
appearing to ignore the bad news and continue to move higher despite the fact
that things are getting worse or could get worse okay well it's possible that
what's happening now was mostly expected here's what I mean let's imagine that
after the stock market fell and things were crazy volatile in the stock market
perhaps was right around this time period here well perhaps at that time
broadly speaking investors began to look ahead and began to come up with
calculations as to what could happen in the stock market
and they said hey look how much we've fallen so far they knew that the US
government was planning on stepping in with the biggest bailout ever
so perhaps investors thought that there was sort of a backstop put in place by
the US government so they say something like oh the government's not going to
let this fall much further so let's jump in by and see if we can make some money
and if we're curious the first stimulus bill was signed right in that time
period so that could very well be the answer the government got involved and
broadly speaking investors think that the economy will get back on its feet so
we may not see investment investors might be sending themselves we may dad
see investment opportunities like this again so the models were jumping in by a
lot of people have a fear of missing out of the rally higher so let's imagine
that that's why the stock market has been moving up
broadly speaking since about that time period well what has happened in the
economy has been broadly expected to be what would happen in the economy so the
stock market is supposed to be forward-looking so as long as things
stay on track as long as the expected is happening well there's no reason for the
stock market to sell off now this leads us to the next natural question will the
stock market keep going higher or will it pull back to let's say it's old lows
or perhaps even lower and I think obviously the answer to the
question is somewhat of an unknown and is very difficult to predict but if we
as a country gradually come out of the lockdown and there's a gradual reopening
of the economy and let's say that the second quarter GDP numbers come in and
they're bad but they're as expected and then the third quarter starts heading in
the right direction and maybe jobs are still bad but once again they're
trending in the right direction as well well
if that does happen well perhaps the perhaps the stock market seems safer
than it then it actually is and it could gradually move higher and I don't expect
for it to keep the current pace I don't think continue to grow if the stock
market continued to move up that fast but I do think a gradual rise higher is
possible but of course the flip side to that is that almost anything major can
derail this from happening and cause another major stock market crash maybe
back to the old laws maybe lower and I think that would depend on the
seriousness of the news that sends the stock market lower let's imagine that
the coronavirus were to come back in the fall I'm sure we all have all heard
predictions that this could happen well what if that does happen and perhaps
imagine that it comes back worse than it has been and lock downs are once again
impose I don't think anybody's really projecting that to happen and I think
that could make the stock market get derailed and end up to be real big
problems for the economy or imagine that jobs go from this trend lower and they
take a turn for the worse in an unexpected manner but if that were to
happen once again that could drive the stock market low because the stock
market is not expecting the point is I think that what's important for us to
remember here is that the key to this whole thing is expectations once we hit
the lows if we go back to the stock market once we hit the lows of the stock
market well expectations shifted from oh my god
how bad could this get to all right well maybe the government's going to get
involved right towards the bottoms when their talk happened about the government
getting involved and then perhaps a map began to evolve for a return to normalcy
and as long as thing play out close to expectations well the
market seems okay with moving higher now this isn't to say that this is right or
wrong this is just the way it works the same is true with individual stocks
analysts come out with expectations for any company for earnings per share let's
say and if the company turns around beats those expectations oftentimes the
stock goes up so if earnings for Apple or any company are expected to be X and
they beat it by 10 cents well it's very possible the start is going to be up
because of them even if those earnings per share are less than the previous
year or less than the previous quarter all that matters is they beat
expectations if they beat expectations well then the stock has a good chance to
rise of course this leads us to recognize the importance of reasonable
expectations and I think that this is where the opportunity lies and
ultimately can help us answer the question should we invest now or wait
for another pullback in the stock market and I think that the answer to this
question is very much tied to our in our personal investment goals if we are
long-term investors or perhaps we do we have consistently done dollar-cost
averaging then I think it makes sense to continue to do that consistently and not
let the level of stock market influence our long term plan that's the very
strength of dollar cost averaging by the way I'm a huge dollar cost averaging fan
but if on the other hand we were trying to be a bit more strategic with for how
we invested well I think it makes sense for us to identify individual
opportunities based on our own personal risk tolerance for example do we like
the long term call it a five-year plan for companies
like Royal Caribbean or Carnival Cruise well if we do then these stocks have
pulled back huge amounts and perhaps investing in them at this levels despite
what the stock market has done bounce tours down whatever could make a lot of
sense or perhaps so looking for companies like some of the bigger
companies like Disney or Apple or Microsoft and we came up with our
calculation of fair value for those companies and we think it makes sense to
invest at a level perhaps these stocks are slightly above that level in that
case I think it makes more sense to wait for the stock market to crash again and
hopefully it gives us the opportunity we need to
invest in those individual names now personally I have a feeling that the
stock market is going to pull back again or at least I think there's a good
possibility that I could pull back again and I'm hoping that some of the
companies that are on my personal bucket list pull back as well so we can get the
opportunity to invest in those at a better price if the market doesn't pull
back well then I think it makes sense for us to continue to plug away and
studying different companies looking for great opportunities and this might lead
us to the question how do we know when is the right time to buy a particular
stock Disney Microsoft Apple whatever it is well I actually did a video
addressing this exact topic where I talked about when is the right time to
buy a stock if you're curious perhaps that could be a good next video for you
to watch there's a link right here there's a link in the description below
and I want to thank you so much for sticking with me all the way into the
video I really appreciate it thanks and I'll see in the next video