- Close to 800,000 people have created new brokerage accounts on three of America’s top brokerage platforms since the coronavirus pandemic hit the US.
- That means tons of new people are playing the markets at a time when things are so uncertain that hundreds of companies canceled their 2020 earnings guidance. There is no model that can predict what’s about to happen to the economy or the market.
- That means tons of new people desperate for a coronavirus vaccine are now betting on potential treatments and cures. Just this week the market handed billions to two companies that made headlines without showing any real data.
- This is very stupid, and people are going to get played.
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There are a lot of words people who watch the markets use to describe their condition. Sometimes it’s choppy; other times it’s swooning. Right now the condition of the market is stupid.
A perfect storm of events has created this condition of stupidity, and each event contributes in its own special way. They are all related, of course, to the most important thing in our world at the moment: the coronavirus pandemic.
Thanks to the coronavirus, millions of Americans are bored at home, some without a job. And as a result, according to the Financial Times, 780,000 of these bored people have created accounts with the three of the four largest brokerages in the US: Charles Schwab, E-Trade, and Interactive Brokers.
This herd of newbies has charged into the market at a time of incredible uncertainty. Hundreds of companies in the S&P 1500 have withdrawn their revenue guidance for 2020, leaving these new investors with little to go on in the way of forward-looking statements.
We know the second quarter will look much, much uglier than the first, but anyone who thinks they know how ugly is trying to call the score of a game before it’s over and after the rules have completely changed.
You will not find a genius on Wall Street, in the Federal Reserve, or at NASA who can call what is about to happen in the stock market. So no matter how smart your friend with the new trading account thinks they are, tell them (gently) that they cannot call it either.
We’re all too emotional to trade drugs right now
Trading is hard, anyone will tell you, and it is in large part a mind game. To get it right, you have to understand your emotions and your biases. This is why there is a whole cottage industry of psychiatrist trading coaches.
At this moment, almost every human being has an innate bias toward finding a coronavirus vaccine or treatment. The market is reflecting the depth of emotion behind that bias in its wild fluctuations whenever there is even the slightest news about a vaccine breakthrough.
Over the past few days we’ve seen two companies make headlines without even remotely having the data to back it up. The most impactful…