July 30th Might Be the Worst Financial Day of the Year

We might be living in a sentiment-driven COVID bubble.

Before you start reading, I want to state my goal for this article. My only goal is to inform on trends I’ve observed in the market and my personal observations of behaviour. My goal is not to incite fear, but rather to create an incentive for you to conduct your own research.

This article is not financial advice. I don’t want to influence any of your financial decisions. So please, don’t read this article and then make financial decisions without doing your due diligence. Use the information from this article to guide your research in the key areas that I’ll discuss.

I will be writing this article as if the audience is somewhat financially literate. I will assume you know the very basics of something like interest rates. For example, low-interest rates mean low borrowing costs. If that seemed hard, don’t worry too much. I’ve added some simple explanations, but you might need to learn on your own as well.

Before getting into the main ideas, let me describe what you can expect to read. The article will be structured as follows:

  1. Qualifications: Who am I? Why do I matter?
  2. A crash course in basic accounting and economics.
  3. COVID data from North America relevant to market-performance.
  4. Rationalization of the ‘COVID BUBBLE’ hypothesis
  5. The potential impact if the COVID bubble is real.


I am a 25-year-old former research analyst of an undergraduate student-led fund. My specialization was on growth stocks in the tech sector. A growth stock should grow at a rate well above the average growth of the market. These stocks are high-risk and high-reward; therefore, I needed to be really good at researching to be successful in my position.

My research process involved many things. Most notably, I read a lot of financial statements. I used the information from the financial statements to create stories about the company, where did they come from, and where are they headed. Basically, I was like a scout for athletes.

Let’s use the example of a scout for basketball players. I looked for intangibles like athleticism or mental toughness. This might equate to the firm’s product. Does their product solve a real-world problem? Do many people share that problem? Effectively, these questions are asking if there is a need for the product and if there is a large enough market for the product.

Then I looked at the tangibles of the basketball player. I looked for things that were quantifiable like scoring, assists, and rebounds. For a firm, this would be the numbers in the financial statements. How much are they investing in Research and Development (R&D)? Do they have a lot of current liabilities — things they need to pay back soon?

So that was the past.

Currently, I am a business graduate student at one of the top business schools in Canada. I’m not working in finance, nor do I plan on doing so in the future. However, I still actively manage all of my family’s money. Therefore, I remain up-to-date with financial markets, market trends, and societal trends that might influence market sentiment (like global pandemics).

I was living in Seoul during the COVID outbreak in Wuhan.

In Seoul, there was a significant amount of alarm. People weren’t panicking, but it became a ubiquitous conversation point within the public sphere. Then there was an outbreak in a city south of Seoul and sh*t hit the fan. COVID was all over the news, we were getting emergency alert messages on our phones, and the government was tracking down and retracing the steps of anyone who was infected. This experience lasted for about a month.

I flew back to Canada at the beginning of March, a few days after Seoul went into full shutdown mode.

I sold all of my positions with exposure to China as soon as I returned to Canada on March 2 — approximately 75% of my portfolio.

The 75% that I sold in March was eventually reinvested in the stock market after the likelihood of the US Stimulus Package became an almost-certainty. I started to dollar-cost-average back into the market beginning March 24 and ending on April 30.

The average person doesn’t need to know what dollar-cost-averaging means. But if you do know what it means and you’re judging me for being a lazy investor, I agree with you. I’m simply not smart enough to try and make smart moves in a super volatile market.

Ultimately, I made a lot of money as the stock markets recovered. I know this isn’t a statement that sits well with most people. I completely understand if there’s a sense of disgust right now. I won’t try to defend the morality of my gains at the expense of other people. However, my unique foresight was simply the result of my situation.

I was living in Asia. I witnessed and experienced the crazy impact of COVID on society. Based on my observations, I took preemptive action before North America started to take COVID seriously.

Crash Course in Accounting and Economics

If you don’t have a background in numbers, don’t be scared. I was able to explain this to my dad, who doesn’t speak English well; English is his fourth language.


“Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health” (Investopedia).

GDP incorporates a country’s consumer spending, investment from firms, government spending, and spending from foreign countries (net exports). It’s one of the primary measures for a country’s economic performance.

P/E Ratio

The Price-Earnings (P/E) ratio is how much I would pay to receive one dollar of the company’s earnings. Not all dollars of earnings are equal. I like to explain this concept by thinking about calories. Imagine you have two foods. You have 100 calories of spinach or 100 calories of cake. How much more would you pay for the cake?

The example of cake is essentially the P/E ratio. People pay more for a dollar of earnings of Company A vs Company B. It’s not a perfect example, but who doesn’t like talking about cake.

The P/E ratio differs between industries. To think about the calorie example, between vegetables and sweets. However, P/E ratios will also vary within an industry, but with a smaller degree of variation. So, between red velvet cake or ice cream cake.

P/E ratios aren’t a terrific measure between different companies. Instead, the ratio is more relevant between competing companies.

Index Fund/Mutual Fund/ETF

Index funds are a basket of stocks defined by a set of rules. Sometimes the rules specify a specific industry like a tech-focused index. Sometimes the rules define a level of performance like the S&P 500. The S&P 500 is an index of the 500 largest publicly traded US companies.

Index funds are like an exclusive treehouse group. To gain entry into the treehouse, a person must first meet the requirements of the group. Once they are in the group, they begin contributing to the net value of the treehouse. Let’s say one member suddenly loses 50% of their value — his parents confiscated his GameBoy so he can’t play video games in the treehouse. However, the net value of the treehouse decreases by less than 50% because each member contributes to an average value. Therefore, the loss of his GameBoy and the subsequent 50% decrease of his value averages out across the other members.

So index funds are often a safer play because you don’t need to pick a stock or time the market. Instead, you’re investing in the overall market or specific industry and expecting its value to increase.

However, when the overall market drops, the index will ultimately drop too. This would be like all the treehouse members losing their GameBoy privileges.

Interest Rates

Interest rates are the cost of borrowing money as a percentage of the amount of money borrowed. For this article, the only interest rates considered will be the rate of borrowing for cash.

If I want to borrow money, I want to pay a low-interest rate. Mainly, I will be paying the bank less money on top of the repayment amount. This explanation is overly simplistic but describes the general idea.

Central banks, or the biggest bank in a country, often set the interest rate based on the goals of their economy. If they want more spending in the economy, they will set a lower interest rate. Therefore, loans will be ‘cheaper’, and logic follows that more people will take out loans. And vice-versa. If they want to contract the money supply, they set interest rates higher.


Equilibrium means different things in different disciplines. But it’s mainly the idea that any system will trend toward a state of balance. If external forces are applied, the system will reach a new state of equilibrium, and the system will achieve a new balance.

Here’s a bad example that is easily understandable; think of a swimming pool. Presumably, 50% of the water is on the right side and 50% on the left. If you add 10L of water to the right side of the pool, momentarily, there will be more water on the right side than the left. But then the 10L will disperse equally. Therefore, after adding the extra water, there will be 5L more on each side, and the pool will return to a 50–50 state of equilibrium.

Financial Quarter

Financial quarters divide up the year. Companies and government bodies report their financial data at the end of a quarter. The financial data includes relevant information for investors or citizens. The quarterly reports are essential because they help to set expectations for the annual reports at the end of the fiscal year.

Retail Investors vs Institutional Investors

Everyone reading this article is most likely a retail investor. We are regular people who buy securities from brokerage firms. We are also commonly referred to as ‘dumb money’ because we don’t have a deep knowledge of securities trading.

Institutional investors are the people you see in business movies. They’re the ones with the expensive suits shouting obscenities into the phone. Institutional investors trade with massive sums of money.

COVID Data Relevant to Markets

In this section, I’ll present relevant data to contextualize the impact of COVID on the economy. I’ve arranged them in a way that attempts to tell a story. Before reading the rationale behind the COVID bubble theory, try to make sense of this data yourself, and we can compare our analyses.

Figure 1: New COVID Cases

The key takeaway from this graph is the significant uptrend in the Americas and India.

Source: Capital Economics

Figure 2: Risk of Recession

The International Monetary Fund (the God of global economies) predicts the global economy to shrink by 3% and predicts the risk of recession per country.

Source: BBC

Figure 3: Forecasted GDP Downgrade Relative to 2008

The risk of recession doesn’t give a relative indicator, so here’s a graph that correlates COVID to the 2008 financial crisis in terms of GDP forecasting.

Source: World Bank

Figure 4: Stock Market Recovery

Big indexes (Nikkei = Japan, Dow = US, FTSE = UK) tanked mid-March, but have seen a steady recovery.

Figure 5: Jobs

The US Labour Department reports 31.8 million people collecting unemployment benefits as of July 4. This is roughly 1 out of 5 Americans.

Source: New York Times

Figure 6: COVID Stimulus Packages (North America)

As of March 25, Canada passed a $75 billion COVID relief bill. The relief package includes “a boost to child benefit payments to families with children, wage subsidies for small business, and tax relief measures” (BBC). The package includes something called a CERB payment (Canada Emergency Response Benefit). Basically, anyone who lost their job due to COVID or is underemployed can apply for a $2000 per month payment for four months, which the government recently extended by two months, bringing the total to $2000 per month for six months (net $12,000).

Per a Washington Post article from April 15, the US has committed more than $6 trillion in COVID relief. I live in Canada, so I only know the US on an aggregate level, not a consumer level. However, I know there’s been a $1200 automatic stimulus cheque to anyone who filed a tax return in 2018 or 2019. There are negotiations underway for a second stimulus cheque.

Figure 7: Consumer Confidence

Consumer sentiment in Canada is roughly two-thirds of its pre-pandemic level as of June 14. If you look at the graph, this means that consumers are trending toward more optimism in terms of future financial expectations.

Source: The Conference Board of Canada

Figure 8: Increasing Retail Investors

Robinhood is a popular trading app for younger retail investors in the US Robinhood does not charge any fees for trading on its platform. Robinhood isn’t available in Canada; Canada has Wealthsimple, a similar trading platform that doesn’t charge trading fees.

Since 2016, Robinhood has grown from 1 million to 10 million users. In the first quarter of 2020 alone, Robinhood added 3 million new accounts.

Fidelity is another financial services platform. They also saw a massive increase in new accounts, 1.2 million in the first quarter of 2020.

The COVID Bubble Hypothesis

On July 30, the US will release the GDP numbers for the 2nd quarter (Q2) of 2020. The GDP numbers will bring rationality back to a sentiment-driven market.

Let’s distill the contextual information and graphs from the previous section and create a story of our COVID economy.

COVID is far from over per Figure 1: New COVID Cases. Big economies are still seeing an uptrend in infections. This doesn’t necessarily mean that new cases are accelerating, but they are climbing nonetheless. There is even chatter about the risk of a second wave of infections in China, and the rest of the world, that could put everyone back into a quarantine lockdown.

Next, the most reputable source for financial information, the overlord of the world economy, is predicting a high risk of recession worldwide per Figure 2: Risk of Recession. The GDPs the world’s largest economies are shrinking; all of North America, most of South America, and most of Europe are at high risk.

But what does the GDP forecast mean? How back could this recession be?

Well, compared to the 2008 financial crisis, COVID might have an even more significant negative impact on the world economy per Figure 3: Forecasted GDP Downgrade Relative to 2008.

I was 13 years old in 2008. I had no conceptualization of money, financial markets, or economies. I didn’t know what the word recession meant. All I knew was that whenever I asked my mom or dad for McDonald’s, they would say no. I’d ask why not, and they would say it’s because of the recession.

My limited understanding of the impact of 2008 was no more McDonald’s and no more annual family trip.

Looking back, I applaud my parents for being so chill despite the massive financial crisis raging around us. They never let on the realities of their financial struggles. So I don’t have a mental or emotional frame of reference for 2008 to correlate our current COVID situation.

But I’ve seen the financial documents. I’ve studied the 2008 collapse. I’ve read about the massive amounts of money that seemingly disappeared overnight. I’ve read about how the entire financial system was in cahoots to maximize financial gain, incentivized by greed, but also a lack of courage to call bullsh*t — all at the expense of regular people.

COVID might be worse than the 2008 crisis. Let that sink in for a second.

Then how the f*ck is the stock market recovering? How are companies trading above their pre-COVID prices? We can clearly see that there has been a swift recovery in Figure 4: Stock Market Recovery.

Here is Apple’s stock year-to-date. Apple hit all-time highs mid-July.

Source: Questrade

Does this make sense to you?

This is Apple. Their biggest market is the US (45% of 2019 revenue), which has been in lockdown for months. Their second-biggest market is Europe (23%), which has also been severely impacted by COVID. What about their supply chain? Apple manufactures in China, patient-zero for COVID.

Who would be buying iPhones and MacBooks right now? A fifth of the US population is collecting unemployment benefits per Figure 5: Jobs. And the impact of job loss isn’t limited to the people who’ve lost the job.

Unemployment affects everyone.

Imagine that 20% of your friends and family are suddenly collecting unemployment benefits. What does that signal to you? Are you optimistic or pessimistic about your own situation? How might your consumption habits change?

You don’t need to be a financial expert. You can have zero accounting knowledge. Based on common sense, how can a company be more valuable after a global pandemic, or arguably during a global pandemic, when people are cutting their spending? How are people affording $1,000 iPhones if they’re losing their jobs?

This begs the question; Why are markets performing well despite all the negative indicators?

Alas, consumer sentiment is driving us, not fundamentals.

Fundamental analysis is a valuation technique. I used fundamental analysis during my time as a research analyst; I used the example of a scout for basketball players. When I was evaluating a potential purchase of stock, I needed to know everything about that company. I looked over their financial statements for things like earnings, assets, debt, and cash flow. I researched the executive team and the board members. I read articles about any other relevant information that might impact my decision, like company culture, competitors, possible legislation, etc. Then I made a decision.

A market that is driven by sentiment does none of those things. Sentiment drives hype, and the hype drives prices.

Here’s why I think we’re driven by sentiment right now.

COVID hit economies like a truck. The big indexes went down by approximately 40%. But, my assumption is the institutional investors probably had the foresight to minimize their risks because they have access to a more global perspective like I did. They probably saw the potential of a significant drop and moved their money into COVID-resistant industries or companies. Again, just an assumption.

However, the retail investors who were holding vulnerable stocks lost a lot of money. Part of the reason for the massive retail loss goes back to the adage of ‘dumb’ money. Retail investors aren’t as savvy as institutional investors. They are driven strongly by emotions rather than rationality. When retail investors see green, they feel great. When they see red, they feel bad. And their emotions ultimately dictate their decision-making. This is a common explanation for panic-selling.

Taking the case of COVID, the media was priming our pessimism. Then the first few cases started to hit America, and media coverage increased. The news added fear into the market, and some stocks began to dip. However, since there was a strong inclination toward a negative and pessimistic outlook, a small dip created more considerable panic. The retail investors saw the first dips as a sign for worse events to come.

More and more people sell. The price of stocks drops even more. People see a more substantial price drop. So those who haven’t sold already start to sell their stocks. And the effect snowballs until we reach the 40% decrease in the market.

But remember, the institutional money was smart enough to predict the stock decline, and either held more in cash, or they moved their capital to pandemic-resistant areas of the market. Therefore, a retail investor’s loss is an institutional investor’s gain.

These big funds were probably able to buy back into their pre-COVID positions at an approximately 40% discount. And as the institutional money started to flow back into stocks that we know, like Apple, Netflix, Amazon, or Zoom, the prices of those stocks begin to increase.

This is where the new retail money comes in. This is money from new investors, people who wanted to get into the stock market but were waiting for a drop in prices. Well, COVID represented that opportunity.

The US Stimulus Package came out, and stocks started to recover even faster based on a more positive outlook on the economy.

It was around this time that the first investing-related questions started to come in. People were asking me for financial advice, resources to learn how to trade, my preferred choice of platform, etc. Then Canada started sending out the CERB payments of $2000 per month. That’s when my Instagram DM’s blew up.

These were random people I knew during my undergrad that wanted my opinion on stock picks, even people I knew from high school. They weren’t seasoned investors. They simply saw stocks at low-prices and were gambling on their recovery. This wasn’t smart investing. It was really more like taking the CERB payment straight to the casino.

Honestly, I bet $20 the majority of them couldn’t explain a stock option. They simply saw a buy and sell button, understood green as good and red as bad, and saw numbers and a neat chart with lines.

They saw this as an opportunity to buy stocks at a discount. They perceived this to be a favourable moment to start their investment portfolios without really knowing how to invest.

Now the relevance of my observations is limited, but I can only assume that other people thought of the COVID price drop as a financial opportunity as well.

So then what happens? Well, we snowball back up.

As part of monetary policy measures taken by the government in response to COVID, interest rates go down to make access to money much more accessible for regular people and small businesses. But imagine you’re someone who sees that Apple is trading at 40% below its price from a few weeks ago. Maybe you think it’ll bounce back because all your friends have been talking about how they’re investing and going to get rich. So perhaps this person takes out a loan to invest in the stock market based on the expectation of a near 40% return.

This is a true story.

The Canadian government continues to hand out relief payments, a net $12,000 to anyone who was qualified (Figure 6: COVID Stimulus Packages). Maybe a percentage of that $12,000 ends up in the stock market.

Perhaps you take money out of your savings on the assumption that you’ll put it in the market, watch it climb for a few months, make a nice return, and put it back in your savings account.

Wherever this money came from, it all ended up in the same place, and it was all supplied by a similar group of people; new retail investors looking to capitalize on a firesale on stocks. Look no further than the growth in trading accounts on Robinhood (Figure 8: Increasing Retail Investors). Robinhood added almost a third of its new users for the past four years within the first four months of 2020.

These new investors might have been the driving force behind the run-up. But they were supported by the reinforcing sentiment of other retail investors. People saw the stocks rising, saw an opportunity, and put money into the market. And the effects snowballed to the point where we are right now. And now, if you look at the stock market, you might think, “Well, things don’t seem so bad. Look at the price of Apple stock. It’s hitting all-time highs. Must be because of a great market recovery” (Figure 7: Consumer Confidence).

This is a probable reason for the stock market recovery. And this is also why retail money is called ‘dumb’ money. No one is trading on fundamentals; it’s all emotionally-driven with the intent to get rich quickly. As I said, it’s no better than gambling.

But the illusion won’t last forever. At some point, rationality kicks in. At some point, the world calls bullsh*t on the tulips.

The GDP numbers on July 30 will be the wake-up call.

The Fallout

First, let me point out that I am making a big assumption. I’m assuming that stock performance will be contingent on GDP. I will admit that GDP is imperfect in many ways. However, per Investopedia, there is a basis for the causality of GDP on the stock market.

The stock market’s impact on GDP is less discussed than the effect of GDP on the stock market. When GDP rises, corporate earnings increase, which makes it bullish for stocks. The inverse occurs when GDP falls, leading to less spending by businesses and consumers, which drives the markets lower.

Ultimately, the effect of the GDP report on July 30 doesn’t matter in terms of relevant financial data. It isn’t about what the GDP data actually means. It’s about what it represents.

The GDP data is tangible. It is quantifiable. It is the rational voice in an irrational market. It doesn’t care about getting rich quick. It doesn’t care how much a retail investor thinks they can make on a market run-up. It merely presents cold hard facts.

When I reinvested back into the market after the March lows, I never expected the market to bounce back so fast, even hitting new highs along the way. The fundamentals simply don’t support the prices we are seeing. And when the lack of fundamentals is made crystal clear on July 30, I fear for the worst.

Here are my last two pieces of data before I sign off because I want to publish this promptly in case you want to do your own research and develop your own conclusions before the 30th. One will be numbers. The other will be an observation of human behaviour.

Everyone knows Tesla. Currently, Tesla’s stock has grown by almost 240% year-to-date. This means Tesla doubled in valuation from January 1 till now. Now, I’m not a Tesla hater. In fact, I love the company, and I think there’s a lot of reasons to want to own stock. I believe Tesla is the future of cars. But I don’t think its stock price is fundamentally sound.

I introduced the idea of a P/E ratio in the crash course section. I haven’t been watching the stock myself, so I can’t guarantee the following numbers. But from a search on a trading site, Tesla’s P/E went from 127.18 on March 31 and was 367.25 on July 23. Think about what that means.

I used the example of a calorie of cake. This is like saying your willingness to pay for this piece of cake has almost tripled in four months. Personally, I don’t think Tesla has done anything to warrant this increase. If anything, they’ve met expectations and launched a rocket into space. But 3x in four months? Maybe if Tesla cars also cured cancer.

The second behavioural observation is more of a personal red flag. I’m always more cautious when lots of people are talking about something. For example, Bitcoin was popping off a few years ago. Everyone wanted a piece of the action even if they didn’t know the basics of blockchain technology. This is dangerous because the increasing demand leads to increasing prices.

It seemed like everyone became a cryptocurrency savant overnight. Random Instagram influencers were discussing their investment decisions, fitness YouTubers telling us about this coin or that coin, even Tai Lopez had a crypto podcast. The last straw for me to sell all my crypto was when my grandma asked me about Bitcoin. She’s 73 and doesn’t speak English. She doesn’t even know how to turn on the TV by herself. But somehow she knew about Bitcoin.

We’re almost at that fevered pitch right now. I’m noticing more and more ‘investment advice’ popping up on my social media. It seems like everyone has a ‘trading strategy’ to help you make millions. People seem so liberal in their advice, and the receivers of this information are just investing their hard-earned money, no questions asked.

Everyone’s an expert when things are good.

Here’s my big worry about this GDP report on July 30 and why I’m advising caution. The market will always settle at an equilibrium. The institutional investors will always take from the retail investors because they are so much smarter. Let’s go back to the pool example from the crash course.

The governments of the world have just added trillions of dollars to the world economy, the majority going to help regular people survive during these tough times. This is akin to dropping a ton of water into one side of the pool. But the pool will always reach equilibrium. And like the pool analogy, all that money that the government just gave to regular people will eventually disperse to benefit the big institutional investors too. Regular people will still keep a lot of money, but only on aggregate when you consider net all regular people. If you used the government payments, took out a loan, or dipped into your savings to invest in the market, you might get screwed.

Final Thoughts

Ultimately, please do the research yourself. Don’t just listen to what one guy on the Internet is saying. All I wanted to do was raise and incentivize a degree of caution. It is up to you to do your own due diligence. Read up on the unemployment numbers, look at the valuation of the stock market, think about other societal trends you see around you. And then make an informed decision.

I’m just a 25-year-old telling his story | Entrepreneur | Traveller | Equities | AI & Robotics | BizDev | SFU, Queen’s | Insta: tenzinozaki

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