I’ve been asked recently, many times, when the stock market will tank – again – in realization that COVID-19 is getting worse not better. 

People remark that on certain days the market seems to digest horrible news with vigour and march ever higher. Tesla, for example, has increased fifty per cent in the past thirty days which translates into a cool US$100 billion increase in its valuation. 

Amazon has jumped twenty per cent over that time adding $300 billion to its valuation. Apple is up thirteen per cent improving its value by $210 billion. Ditto for Microsoft up thirteen per cent for another $200 billion in market cap. 

All told these companies have increased in value by $800 billion in thirty days. That’s the equivalent of seven per cent of the total output of the entire U.S. economy for a year. 

The FAANGs are now the size of about a third of the U.S. economy. An impressive performance and it shows that investors enthusiastically appreciate certain stocks. 

While these shares are doing well others are really struggling to catch the eye of investors. 

Banking is a business that we think really reflects the heart beat of the economy. While the economic heart attack we have experienced isn’t going to be fatal, and many would argue it’s getting less bad from an economic perspective, the banking sector remains in intensive care. 

The group is off about eighteen per cent in the past thirty days. Clearly investors are starkly discriminating between winners and losers. 

The sign of a fairly healthy ‘market’ is when not everything moves in the same direction. It does not mean however that there is not excessive optimism in certain sectors or stocks. 

We are not saying that if you own Amazon right now (we do) that you are crazy and going to lose your shirt. It’s a company that rightly deserves an allocation of investment dollars because it’s doing so many things so consistently well and has a brilliant future. 

But math, irrespective of valuation, opinion or any investment thesis, does begin to have an impact on the ability for any one or a few stocks to carry the day forever.

Here are a few reasons why (using Tesla as an example) things get hard when only a few stocks are going up:


  • There are about 185 million shares of Tesla that are theoretically for sale. Today it takes fifty per cent more dollars than last month to buy one of those shares. When you want to see the stock appreciate by an additional twenty per cent that will require an additional $50 billion of buying power. That’s a lot. That’s like creating a new GM and Ford combined in the next thirty days.


  • It certainly can happen but the math starts getting tricky to justify allocating more dollars or finding new fans (or Robinhood subscribers) without tripping across a few enthusiastic sellers (maybe some rich insiders, too). Sellers who may think that owning Walmart might start looking attractive at similar valuations or how they may want to take their newfound fortune and buy a car. 


  • Because Tesla still loses money, and likely will for the foreseeable future, and needs to make large investments to continue to make new cars, it may sell new shares to eager investors. A billion here or there would certainly help out. Don’t be surprised if Tesla keeps rockin’ that Elon Musk feeds the bulls some new paper. 


  • When only a few stocks are up and more are down, the human brain starts looking for bargains and/or seeking to lock-in profits. This MAY lead to violent swings in the overall market indices as only those rocket ships are riding the wave and should the gang of enthusiasts turn more risk adverse, the rocket may lose some of its loft. 


Investor psychology is a tricky thing to measure and predict. We only know that investors change their minds frequently. 


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