The Stock Market Makes No Sense. And it Makes Perfect Sense.

There are a lot things that could take a business down when the economy shuts off for a few months. High up on that list would be debt.

It’s no surprise then, that the stocks with the strongest balance sheets held up better during the lockdown and have outperformed coming out of it.

But then what the hell do we make of this chart from Sarah Ponczek? It shows that the most shorted stocks, ostensibly companies with a weak balance sheet, among other things, got cut in half in the first quarter. That makes sense. But then they more than doubled, and are now higher than they were when the recession started.

Are these two charts contradictory? Maybe not, but I’m having a tough time making sense of it.

I guess this is the part where people would scream about Fed manipulation? That’s always an easy crutch, but that’s a not a satisfying answer. Unfortunately, when it comes to providing a reason we can make sense of, the market doesn’t always oblige.