Expecting The Expected Unexpected

Everybody got that?

“Freddo, you handle the pitch. But on the translation controllers, all backwards. So if the Earth starts drifting down you need to thrust aft, not forwards.”

— Tom Hanks as Jim Lovell, Apollo 13

I watched Apollo 13 on Netflix this weekend and was having recollections of this scene as I thought about the stock market getting ready for the week ahead.

The scene is as the crew are preparing for their manual burn to right their course, as they attempt an emergency landing back on Earth. Astronaut Jim Lovell is essentially reminding one of his crewmembers, who is maneuvering their lunar module, that all of the controls are backwards.

Talk about a great analogy for the stock market.

If there’s a lesson to be learned about being dead wrong about the market crashing due to high interest rates, it should be that because the market is a forward-looking mechanism, and because economic data often arrives with a lag, sometimes stocks literally do the polar opposite of what they "should" do.

Here’s the performance of stocks during the fastest and highest rate hike cycle in history, sitting on top of the largest pile of debt humanity has ever seen accrue:

It wasn’t really insane to postulate over the last two years that a quick spike in interest rates would eventually lead to economic calamity and markets crashing. Hell, it may still very well happen. But, putting aside whether or not I got the timing or the thesis wrong, let’s examine quickly why I’ve been wrong so far to begin with.