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Any idea why the stock market is still holding up? Whether or not you think the virus will be resolved quickly, the economy has now taken a serious hit. Is th

Any idea why the stock market is still holding up? Whether or not you think the virus will be resolved quickly, the economy has now taken a serious hit. Is the feeling that the government stimulus actions will be enough to completely erase the Covid damage? Will they resolve the shaky fundamentals and sky-high valuations we saw heading into this mess? Perhaps I'm a simpleton for expecting rational markets, but it seems like equities should be falling further.

eloisant 7y ago
I'm not sure the economy is getting a hit as big as it looks, but it's rather on "pause". I think many of these workers are laid off so they can get unemployment benefits, and they'll be hired again by the same companies as soon as the quarantine ends - which should take a couple month if we look at what happened in China. Sure, some companies will die from losing all of their business during the quarantine, but the number of jobless claims is not representative of the workers who will still be out of a job after the quarantine.
- 01100011 7y ago
  The million dollar question is, will this be a 'V shaped recovery', a.k.a. 'pause' or will it turn into something worse. I hear a lot about companies with cash flow problems which may not survive the hit. Is that true? Beats me. It seems credit is cheap right now. What about long term though? For many industries, it takes a while to spin things back up and see cash flow. Will the economic mitigation measures be enough to see those companies through? We may also be looking at permanent changes in behavior. Sure, there is a lot of pent up demand for getting out and socializing, but if people are being bled dry by meager stimulus checks, they're not going to rush to fill the restaurants and malls when this is over. Edit: Just saw this, an interview with El-Erian on liquidity issues, https://www.youtube.com/watch?v=MjzBKtVTdtQ https://www.youtube.com/watch?v=MjzBKtVTdtQ
  - ta1234567890 7y ago
    Credit being cheap only works if you have a good plan and expectations that the business is going to survive. Most small businesses are not in that position (and even large businesses like Macy's, Cheesecake Factory and Subway). Shops that are not getting foot traffic now have no idea when they'll be able to reopen, getting a loan to pay their lease would probably be unpayable afterwards. Business owners also need to make a living, so they are looking into getting jobs or starting alternative businesses. Their original businesses are most likely not coming back. And there's no way the economy will fully reopen before at least a year. China is not a good comparison, because 1) the US did not follow the same approach as China in dealing with the virus, 2) China has been lying about their economy and number of cases and 3) even if China was fully open for business now, the biggest markets are not buying - Europe and the US are just beginning a huge recession, that in turn will hit China back and will affect the recovery of the world economy. A V shaped recovery is, in my opinion, a made up dream to keep people from panicking.
  - jlokier 7y ago
    Credit is cheap right now if you can get it. But just like before, it's "subject to status". Which roughly means, if you really need it, the answer is no.
  - ykevinator 7y ago
    It's a great point
- greendave 7y ago
  Unfortunately there is no evidence to suggest that the US will get out of this anywhere as quickly or efficiently as China. On the contrary, so far it appears US cases will peak much higher and later than in China, and a lack of resources at the state and local level will massively slow any subsequent recovery.
  - nostromo 7y ago
    Nobody has any idea what is actually happening in China, and most of the numbers are more propagandistic than informative, so we should probably just stop speculating entirely. The best numbers I've seen for projecting US cases and deaths honestly seem to be pretty good: https://covid19.healthdata.org/projections https://covid19.healthdata.org/projections This projects less than 100k deaths in the US this year. Compare that to heart disease (largely preventable) at 650k a year. That'd also make it only about 5 times worse than a bad flu year. (Edit: thanks for the correction below; if correct, this would be only about 2 times worse than a bad flu year.)
    - StrangeDoctor 7y ago
      I also like this model but be careful with it. That’s just the first wave, and this assumes we adhere to strict social distancing in all states.
    - sundaeofshock 7y ago
      100,000 dead in three months is not “pretty good”. Honestly, I don’t understand the casualness that people seem to have around the number of deaths. “It’s not that bad” is such a callous take.
      - nostromo 7y ago
        Are you incapable of understanding relative terms? Compared to the millions of people dead in the US that many were projecting just a few days and weeks ago, this is indeed good -- in fact, very good, because it seems many fewer people will die.
- wool_gather 7y ago
  > they'll be hired again by the same companies as soon as the quarantine ends Hopefully, yes, although this turnaround has some unfortunate bureaucratic costs to both the employees and employers. I hope those small-medium business loans work for keeping a reasonable number of people on payrolls. While the administration of those loans has its own potential pitfalls, in some ways it seems like the better path than leaning on the unemployment insurance system.
- anthonybsd 7y ago
  >I think many of these workers are laid off so they can get unemployment benefits, and they'll be hired again by the same companies as soon as the quarantine end That is highly doubtful. Many companies can't survive even 2 months of inactivity and will fold. >which should take a couple month if we look at what happened in China. China is undergoing a second wave right now [1] due to unlocking quarantine too early. It's extremely likely that they will be undergoing a second lockdown. Anecdotally, speaking to a lot of my friends in NYC most everyone who is currently WFH (myself included) isn't planning on returning back to the offices until at least the end of the year. Realistically, I think we won't fully get rid of lockdowns until vaccine is available and 80% of the population is vaccinated. [1] https://www.bloomberg.com/news/articles/2020-04-02/chinese-county-back-under-lockdown-after-infection-re-emerges https://www.bloomberg.com/news/articles/2020-04-02/chinese-c...
jimrandomh 7y ago
The stock market isn't holding up, it's down 26% since this started. The thing to remember is that the stock market is predictive; it fell when investors foresaw the job losses, before they actually happened.
- srverma 7y ago
  Interesting train of thought. Could this possibly indicate that investors see light at the end of the tunnel? Dow & S&P are up 1% right now.
  - palebluedot 7y ago
    That would seem to be the case, but keep in mind that doesn't mean they are right (but I hope they are). We are in uncharted waters here, so the models and playbooks of investors may be even less accurate than normal.
- nostromo 7y ago
  In 2008 gdp declined by ~2% and the stock market fell 50%. The downright dreadful forecasts coming in about 2020 GDP double digit declines seem to me to warrant a larger decline in equities. I think a lot of folks think this will be a sharp V recovery, but I'm not so sure. I'm already seeing knock-on effects in the real world. People in tech being laid off; (formerly) rich folks cutting way back on planned spending; entire projects canceled, etc.
  - almost_usual 7y ago
    I wouldn’t be surprised of on again off again quarantines over the next year. This is our new reality until a vaccine is manufactured and distributed.
  - MuffinFlavored 7y ago
    https://www.statista.com/statistics/188165/annual-gdp-growth-of-the-united-states-since-1990/ https://www.statista.com/statistics/188165/annual-gdp-growth... GDP growth declined -0.1% in '08 and -2.5% in '09
marcosdumay 7y ago
Supposed you have some 10k dollars you won't need at the next 2 years. What would you do with them right now? How do you expect the stock market to look like in 2 or 3 years? Do you expect any of the causes of the currently overvaluation you are seeing to be gone?
- davidw 7y ago
  Buy into a vanguard fund like VTSAX and then put in a little bit every month, so you just average it out over time, rather than obsessing about trying to pick when it hits bottom.
  - marcosdumay 7y ago
    Well, my question was rhetorical. But I imagine you have no trouble understand why the stock market stopped free-falling before it hits 0.
klmadfejno 7y ago
I'd put my bets on a few ideas. 1) A large portion of equity is held by large funds, which may be contractually unable to pull out of the equity market at all. 2) Lots of people are in it for a short term bump based on stimulus expectations 3) Most investments are made with a longer time horizon than the immediate pain of the short term, and thus, have no reason to sell now. I think this could be an excellent rare economic data point to suggest the efficient market hypothesis does not work anymore (trumped by behavioral economics issues).
adrr 7y ago
I heard 401k target date funds are rebalancing to maintain the desired ratios. The algos are buying stocks. Not sure if that is actually happening but sound plausible with auto rebalancing.
hurricanetc 7y ago
The stock market is just a collection of people betting on where they think things are going. The market declined 25-30% because people were predicting a downturn. Now we’re in that downturn. The reason the market didn’t tank today is because this jobs report was already priced in.
- tandr 7y ago
  Stock market lost connection to "people" long time ago. It is all big funds and algos, small investors who want to manage their own money are not even visible. Quite a lot action happens in pre and after-hours as well (look at these open gaps over last couple weeks) - "regular" public cannot even get there.
  - hurricanetc 7y ago
    You can take people to mean whatever you want. Behind those algorithms and big funds are people pulling the strings. At the end of the day the market is a reflection of where things will go.
joeyrideout 7y ago
While I don't think the selloff is over, the bull case for American equities (I assume you are talking about U.S. stock market) is still quite strong: - Emerging markets, Japan, and Euro also being hit by the virus. Where else will capital flow? - International bond markets selling off as credit risks rise removes bonds as the traditional flight to safety (US Gov Bonds being the notable exception). - Strong US dollar vs. other world currencies gives international capital extra safety when parked in U.S. stocks. - Large-cap U.S. equities such as those in the S&P 500 can generally weather short-term liquidity shocks like this, and if anything they will grow by absorbing the market share of failing small businesses.
- ajross 7y ago
  FWIW: Japan (for sure) and Europe (probably) seem likely to recover from the lockdowns rather faster than the US, which is just now getting started in big chunks of the country. While I agree in principle that the markets are trying to price in the downturn, I genuinely don't think that the median-dollar-investor abstraction really has a clue how long this is likely to last.
ta1234567890 7y ago
It's anybody's guess at this point. Most people at r/wallstreetbets on Reddit are saying three things: 1) "it was priced in", meaning that somehow investors already expected this to happen, 2) the Fed is propping up the market with unlimited QE (Quantitative Easing), which means they are printing trillions of dollars to buy up a lot of bonds to create liquidity, and 3) today's rally is driven by oil prices surging because of Trump's tweet saying Saudi Arabia and Russia will cut down production to help stabilize the market. They are also kind of shocked that stocks are not plummeting and saying the market is rigged. Seems like a lot of people have been buying PUT options expecting the market to crash soon.
- Loughla 7y ago
  >Seems like a lot of people have been buying PUT options expecting the market to crash soon. Reddit's investors haven't been known to be the a) smartest investors, b) most savvy investors, or c) adult humans.
neural_thing 7y ago
Here's Howard Marks about what's priced in and what isnt: https://www.oaktreecapital.com/docs/default-source/memos/which-way-now.pdf https://www.oaktreecapital.com/docs/default-source/memos/whi... TL;DR: markers are pricing in a V shaped recovery in a couple of months
NicoJuicy 7y ago
Some stocks/companies will profit, but a hit is already priced in.
erentz 7y ago
Non expert speculation: we are printing money like no tomorrow. We are giving $4 trillion in free money to large corporations. With how easily they agreed to that there’s reason to expect they’ll do even more. There’s a huge demand for USD outside the US. All this means may be heading for a period of high inflation in the US despite the recession. People need to put money somewhere and assets are the only place to go.
closeparen 7y ago
Do you think the virus means companies are not worth owning anymore?
RestlessMind 7y ago
If we go by textbook definition of stock prices, it is supposed to be the "present value of future cash flows". If we do not expect the society to be fundamentally altered due to COVID-19, then future cash flows should not really be affected from what they were assumed to be in Jan-2020. So I would like to rephrase your question - what kind of permanent change do you expect in our society due to COVID-19?
daxorid 7y ago
The FRB is printing $90B per day as part of its open-ended QE program ( $935B in Treasurys and $344B in agency paper since 16 Mar ) While they are not technically buying stocks, every dollar of paper they buy from primary dealer inventory is a dollar that managers will find a home for. The horrific employment news portends the need for the Fed to make $90B/day look like amateur hour in the near future. Hence, the run up in basically every single asset class today. Understand that in an era of perpetual debt monetization, silly things like P/E multiples, employment, or earnings growth don't anchor stocks. Infinite liquidity combined with fund managers with a fetish for yield, no matter what the risk, are the only relevant mechanism in town. It's entirely possible to simultaneously have DJIA at 50,000 and half-mile-long lines for soup kitchens in this environment.
Lidador 7y ago
Hold my beer.

eloisant 7y ago

I'm not sure the economy is getting a hit as big as it looks, but it's rather on "pause". I think many of these workers are laid off so they can get unemployment benefits, and they'll be hired again by the same companies as soon as the quarantine ends - which should take a couple month if we look at what happened in China. Sure, some companies will die from losing all of their business during the quarantine, but the number of jobless claims is not representative of the workers who will still be out of a job after the quarantine.

01100011 7y ago
The million dollar question is, will this be a 'V shaped recovery', a.k.a. 'pause' or will it turn into something worse. I hear a lot about companies with cash flow problems which may not survive the hit. Is that true? Beats me. It seems credit is cheap right now. What about long term though? For many industries, it takes a while to spin things back up and see cash flow. Will the economic mitigation measures be enough to see those companies through? We may also be looking at permanent changes in behavior. Sure, there is a lot of pent up demand for getting out and socializing, but if people are being bled dry by meager stimulus checks, they're not going to rush to fill the restaurants and malls when this is over. Edit: Just saw this, an interview with El-Erian on liquidity issues, https://www.youtube.com/watch?v=MjzBKtVTdtQ https://www.youtube.com/watch?v=MjzBKtVTdtQ
- ta1234567890 7y ago
  Credit being cheap only works if you have a good plan and expectations that the business is going to survive. Most small businesses are not in that position (and even large businesses like Macy's, Cheesecake Factory and Subway). Shops that are not getting foot traffic now have no idea when they'll be able to reopen, getting a loan to pay their lease would probably be unpayable afterwards. Business owners also need to make a living, so they are looking into getting jobs or starting alternative businesses. Their original businesses are most likely not coming back. And there's no way the economy will fully reopen before at least a year. China is not a good comparison, because 1) the US did not follow the same approach as China in dealing with the virus, 2) China has been lying about their economy and number of cases and 3) even if China was fully open for business now, the biggest markets are not buying - Europe and the US are just beginning a huge recession, that in turn will hit China back and will affect the recovery of the world economy. A V shaped recovery is, in my opinion, a made up dream to keep people from panicking.
- jlokier 7y ago
  Credit is cheap right now if you can get it. But just like before, it's "subject to status". Which roughly means, if you really need it, the answer is no.
- ykevinator 7y ago
  It's a great point
greendave 7y ago
Unfortunately there is no evidence to suggest that the US will get out of this anywhere as quickly or efficiently as China. On the contrary, so far it appears US cases will peak much higher and later than in China, and a lack of resources at the state and local level will massively slow any subsequent recovery.
- nostromo 7y ago
  Nobody has any idea what is actually happening in China, and most of the numbers are more propagandistic than informative, so we should probably just stop speculating entirely. The best numbers I've seen for projecting US cases and deaths honestly seem to be pretty good: https://covid19.healthdata.org/projections https://covid19.healthdata.org/projections This projects less than 100k deaths in the US this year. Compare that to heart disease (largely preventable) at 650k a year. That'd also make it only about 5 times worse than a bad flu year. (Edit: thanks for the correction below; if correct, this would be only about 2 times worse than a bad flu year.)
  - StrangeDoctor 7y ago
    I also like this model but be careful with it. That’s just the first wave, and this assumes we adhere to strict social distancing in all states.
  - sundaeofshock 7y ago
    100,000 dead in three months is not “pretty good”. Honestly, I don’t understand the casualness that people seem to have around the number of deaths. “It’s not that bad” is such a callous take.
    - nostromo 7y ago
      Are you incapable of understanding relative terms? Compared to the millions of people dead in the US that many were projecting just a few days and weeks ago, this is indeed good -- in fact, very good, because it seems many fewer people will die.
wool_gather 7y ago
> they'll be hired again by the same companies as soon as the quarantine ends Hopefully, yes, although this turnaround has some unfortunate bureaucratic costs to both the employees and employers. I hope those small-medium business loans work for keeping a reasonable number of people on payrolls. While the administration of those loans has its own potential pitfalls, in some ways it seems like the better path than leaning on the unemployment insurance system.
anthonybsd 7y ago
>I think many of these workers are laid off so they can get unemployment benefits, and they'll be hired again by the same companies as soon as the quarantine end That is highly doubtful. Many companies can't survive even 2 months of inactivity and will fold. >which should take a couple month if we look at what happened in China. China is undergoing a second wave right now [1] due to unlocking quarantine too early. It's extremely likely that they will be undergoing a second lockdown. Anecdotally, speaking to a lot of my friends in NYC most everyone who is currently WFH (myself included) isn't planning on returning back to the offices until at least the end of the year. Realistically, I think we won't fully get rid of lockdowns until vaccine is available and 80% of the population is vaccinated. [1] https://www.bloomberg.com/news/articles/2020-04-02/chinese-county-back-under-lockdown-after-infection-re-emerges https://www.bloomberg.com/news/articles/2020-04-02/chinese-c...

jimrandomh 7y ago

The stock market isn't holding up, it's down 26% since this started. The thing to remember is that the stock market is predictive; it fell when investors foresaw the job losses, before they actually happened.

srverma 7y ago
Interesting train of thought. Could this possibly indicate that investors see light at the end of the tunnel? Dow & S&P are up 1% right now.
- palebluedot 7y ago
  That would seem to be the case, but keep in mind that doesn't mean they are right (but I hope they are). We are in uncharted waters here, so the models and playbooks of investors may be even less accurate than normal.
nostromo 7y ago
In 2008 gdp declined by ~2% and the stock market fell 50%. The downright dreadful forecasts coming in about 2020 GDP double digit declines seem to me to warrant a larger decline in equities. I think a lot of folks think this will be a sharp V recovery, but I'm not so sure. I'm already seeing knock-on effects in the real world. People in tech being laid off; (formerly) rich folks cutting way back on planned spending; entire projects canceled, etc.
- almost_usual 7y ago
  I wouldn’t be surprised of on again off again quarantines over the next year. This is our new reality until a vaccine is manufactured and distributed.
- MuffinFlavored 7y ago
  https://www.statista.com/statistics/188165/annual-gdp-growth-of-the-united-states-since-1990/ https://www.statista.com/statistics/188165/annual-gdp-growth... GDP growth declined -0.1% in '08 and -2.5% in '09

marcosdumay 7y ago

Supposed you have some 10k dollars you won't need at the next 2 years. What would you do with them right now? How do you expect the stock market to look like in 2 or 3 years? Do you expect any of the causes of the currently overvaluation you are seeing to be gone?

davidw 7y ago
Buy into a vanguard fund like VTSAX and then put in a little bit every month, so you just average it out over time, rather than obsessing about trying to pick when it hits bottom.
- marcosdumay 7y ago
  Well, my question was rhetorical. But I imagine you have no trouble understand why the stock market stopped free-falling before it hits 0.

klmadfejno 7y ago

I'd put my bets on a few ideas. 1) A large portion of equity is held by large funds, which may be contractually unable to pull out of the equity market at all. 2) Lots of people are in it for a short term bump based on stimulus expectations 3) Most investments are made with a longer time horizon than the immediate pain of the short term, and thus, have no reason to sell now. I think this could be an excellent rare economic data point to suggest the efficient market hypothesis does not work anymore (trumped by behavioral economics issues).

adrr 7y ago

I heard 401k target date funds are rebalancing to maintain the desired ratios. The algos are buying stocks. Not sure if that is actually happening but sound plausible with auto rebalancing.

hurricanetc 7y ago

The stock market is just a collection of people betting on where they think things are going. The market declined 25-30% because people were predicting a downturn. Now we’re in that downturn. The reason the market didn’t tank today is because this jobs report was already priced in.

tandr 7y ago
Stock market lost connection to "people" long time ago. It is all big funds and algos, small investors who want to manage their own money are not even visible. Quite a lot action happens in pre and after-hours as well (look at these open gaps over last couple weeks) - "regular" public cannot even get there.
- hurricanetc 7y ago
  You can take people to mean whatever you want. Behind those algorithms and big funds are people pulling the strings. At the end of the day the market is a reflection of where things will go.

joeyrideout 7y ago

While I don't think the selloff is over, the bull case for American equities (I assume you are talking about U.S. stock market) is still quite strong: - Emerging markets, Japan, and Euro also being hit by the virus. Where else will capital flow? - International bond markets selling off as credit risks rise removes bonds as the traditional flight to safety (US Gov Bonds being the notable exception). - Strong US dollar vs. other world currencies gives international capital extra safety when parked in U.S. stocks. - Large-cap U.S. equities such as those in the S&P 500 can generally weather short-term liquidity shocks like this, and if anything they will grow by absorbing the market share of failing small businesses.

ajross 7y ago
FWIW: Japan (for sure) and Europe (probably) seem likely to recover from the lockdowns rather faster than the US, which is just now getting started in big chunks of the country. While I agree in principle that the markets are trying to price in the downturn, I genuinely don't think that the median-dollar-investor abstraction really has a clue how long this is likely to last.

ta1234567890 7y ago

It's anybody's guess at this point. Most people at r/wallstreetbets on Reddit are saying three things: 1) "it was priced in", meaning that somehow investors already expected this to happen, 2) the Fed is propping up the market with unlimited QE (Quantitative Easing), which means they are printing trillions of dollars to buy up a lot of bonds to create liquidity, and 3) today's rally is driven by oil prices surging because of Trump's tweet saying Saudi Arabia and Russia will cut down production to help stabilize the market. They are also kind of shocked that stocks are not plummeting and saying the market is rigged. Seems like a lot of people have been buying PUT options expecting the market to crash soon.

Loughla 7y ago
>Seems like a lot of people have been buying PUT options expecting the market to crash soon. Reddit's investors haven't been known to be the a) smartest investors, b) most savvy investors, or c) adult humans.

neural_thing 7y ago

Here's Howard Marks about what's priced in and what isnt: https://www.oaktreecapital.com/docs/default-source/memos/which-way-now.pdf https://www.oaktreecapital.com/docs/default-source/memos/whi... TL;DR: markers are pricing in a V shaped recovery in a couple of months

NicoJuicy 7y ago

Some stocks/companies will profit, but a hit is already priced in.

erentz 7y ago

Non expert speculation: we are printing money like no tomorrow. We are giving $4 trillion in free money to large corporations. With how easily they agreed to that there’s reason to expect they’ll do even more. There’s a huge demand for USD outside the US. All this means may be heading for a period of high inflation in the US despite the recession. People need to put money somewhere and assets are the only place to go.

closeparen 7y ago

Do you think the virus means companies are not worth owning anymore?

RestlessMind 7y ago

If we go by textbook definition of stock prices, it is supposed to be the "present value of future cash flows". If we do not expect the society to be fundamentally altered due to COVID-19, then future cash flows should not really be affected from what they were assumed to be in Jan-2020. So I would like to rephrase your question - what kind of permanent change do you expect in our society due to COVID-19?

daxorid 7y ago

The FRB is printing $90B per day as part of its open-ended QE program ( $935B in Treasurys and $344B in agency paper since 16 Mar ) While they are not technically buying stocks, every dollar of paper they buy from primary dealer inventory is a dollar that managers will find a home for. The horrific employment news portends the need for the Fed to make $90B/day look like amateur hour in the near future. Hence, the run up in basically every single asset class today. Understand that in an era of perpetual debt monetization, silly things like P/E multiples, employment, or earnings growth don't anchor stocks. Infinite liquidity combined with fund managers with a fetish for yield, no matter what the risk, are the only relevant mechanism in town. It's entirely possible to simultaneously have DJIA at 50,000 and half-mile-long lines for soup kitchens in this environment.

Lidador 7y ago

Hold my beer.