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Is the stock market connected to reality anymore? 16 million Americans lost their jobs in three weeks and in that time there's been a substantial rally. This c

Is the stock market connected to reality anymore? 16 million Americans lost their jobs in three weeks and in that time there's been a substantial rally. This can't just be short covering. What gives?

ptero 7y ago
Stock market is volatile probably due to many factors, with HFT probably playing a significant role. That said, a jump in unemployment claims today is likely a non-event for stocks: it was predictable and as such already priced into the market. Markets are driven more by expectations 6+ months from now, for which you get the full spectrum of "90% become poor for many years" to "pumping more cash in, use inflation to deflate debts and go back to business as before". I suspect we will get something in the middle, but its just a wild guess. My 2c.
- sjg007 7y ago
  >Markets are driven more by expectations 6+ months from now If this was the case then we wouldn't have since the crash due to Covid-19.
  - chasd00 7y ago
    during the market crashes we weren't we looking at 100-240k dead in the coming months and that was considered "good"?
    - sjg007 7y ago
      My point is that people claim that the market has already priced in the next 6 months. This is not true.
      - ptero 7y ago
        Next 6 months includes a lot of uncertainty in expectations which is, statistically, priced in. Those expectations may have a distribution which might make for a strange average response. For example, consider a bimodal distribution: 50% +1, 50% -1. The average is zero, but everyone that believes in this distribution believes that zero is highly unlikely. Thus, if there are big benefit for guessing right and little for guessing zero, the actions can rapidly oscillate, seemingly without major external information (just based on whichever of two almost-equally-likely outcomes seems likelier).
        sjg007 7y ago
        Statistically priced in? Huh? I doubt that.
zrail 7y ago
The Fed has promised to basically prop up the market for however long it takes.
jonplackett 7y ago
It's speculation I guess. People just assuming there will be a bounce back up and then other people jumping on to make money. So in a way, yes it is disconnected from reality. The stocks did go crazy low though on 18th March. Tesla pretty much halved its value.
- ceejayoz 7y ago
  Tesla had roughly quadrupled in a couple of months prior, though.
  - jonplackett 7y ago
    Based also (mostly) on speculation
beisner 7y ago
I think we’ve known for a while that the stock market is not the economy. My two cents: 1) Uncertainty is anathema to markets. At the beginning of the crisis, there was a ton of uncertainty about how the disease would progress, what it’s impact on supply chains would be globally, and how governments would respond. In the last few weeks, the US has gotten a lot more information on how things progress, “flatten the curve strategies” are appearing to work (which reduces uncertainty), supply chains are still very strong and, for staple goods/services, only minority affected, and the central banks of the world are issuing a MASSIVE amount of short term liquidity to prevent credit crunches. 2) (this is a bit more cynical). I suspect the productivity of a huge number of Americans, particularly in service roles, has disproportionately less impact on the economic productivity of publicly traded companies. In other words, many jobs are disposable without impacting the financial health of companies in the stock market. Small businesses are being gutted, and so is a lot of big retail, but it’s been too short of a time for those effects to make a dent in how many of the publicly traded businesses are operating.
- mercer 7y ago
  I agree with your comment, but I'll add that pessimistically, I feel that for reality these 'service roles' might end up having a much larger impact that we expect, and the discrepancy will have untold, unexpected consequences. A crisis like this one might make us realize what truly matters. It also might not, which at this point I'm half-expecting.
jussij 7y ago
I suspect they might be happy with the $USD 500 Billion headed their way as part of the COVID-19 coronavirus stimulus bill. So if things get really bad, since the government has bailed them out once, I suspect they might be thinking there'll be more where that came from.
eeZah7Ux 7y ago
> Is the stock market connected to reality anymore? No, it's a silly game to make traders richer and everybody else poorer.
- Def_Os 7y ago
  Don't forget that generally close to half of traders also lose money.

Is the stock market connected to reality anymore? 16 million Americans lost their jobs in three weeks and in that time there's been a substantial rally. This can't just be short covering. What gives?

ptero 7y ago

Stock market is volatile probably due to many factors, with HFT probably playing a significant role. That said, a jump in unemployment claims today is likely a non-event for stocks: it was predictable and as such already priced into the market. Markets are driven more by expectations 6+ months from now, for which you get the full spectrum of "90% become poor for many years" to "pumping more cash in, use inflation to deflate debts and go back to business as before". I suspect we will get something in the middle, but its just a wild guess. My 2c.

sjg007 7y ago
>Markets are driven more by expectations 6+ months from now If this was the case then we wouldn't have since the crash due to Covid-19.
- chasd00 7y ago
  during the market crashes we weren't we looking at 100-240k dead in the coming months and that was considered "good"?
  - sjg007 7y ago
    My point is that people claim that the market has already priced in the next 6 months. This is not true.
    - ptero 7y ago
      Next 6 months includes a lot of uncertainty in expectations which is, statistically, priced in. Those expectations may have a distribution which might make for a strange average response. For example, consider a bimodal distribution: 50% +1, 50% -1. The average is zero, but everyone that believes in this distribution believes that zero is highly unlikely. Thus, if there are big benefit for guessing right and little for guessing zero, the actions can rapidly oscillate, seemingly without major external information (just based on whichever of two almost-equally-likely outcomes seems likelier).
      - sjg007 7y ago
        Statistically priced in? Huh? I doubt that.

zrail 7y ago

The Fed has promised to basically prop up the market for however long it takes.

jonplackett 7y ago

It's speculation I guess. People just assuming there will be a bounce back up and then other people jumping on to make money. So in a way, yes it is disconnected from reality. The stocks did go crazy low though on 18th March. Tesla pretty much halved its value.

ceejayoz 7y ago
Tesla had roughly quadrupled in a couple of months prior, though.
- jonplackett 7y ago
  Based also (mostly) on speculation

beisner 7y ago

I think we’ve known for a while that the stock market is not the economy. My two cents: 1) Uncertainty is anathema to markets. At the beginning of the crisis, there was a ton of uncertainty about how the disease would progress, what it’s impact on supply chains would be globally, and how governments would respond. In the last few weeks, the US has gotten a lot more information on how things progress, “flatten the curve strategies” are appearing to work (which reduces uncertainty), supply chains are still very strong and, for staple goods/services, only minority affected, and the central banks of the world are issuing a MASSIVE amount of short term liquidity to prevent credit crunches. 2) (this is a bit more cynical). I suspect the productivity of a huge number of Americans, particularly in service roles, has disproportionately less impact on the economic productivity of publicly traded companies. In other words, many jobs are disposable without impacting the financial health of companies in the stock market. Small businesses are being gutted, and so is a lot of big retail, but it’s been too short of a time for those effects to make a dent in how many of the publicly traded businesses are operating.

mercer 7y ago
I agree with your comment, but I'll add that pessimistically, I feel that for reality these 'service roles' might end up having a much larger impact that we expect, and the discrepancy will have untold, unexpected consequences. A crisis like this one might make us realize what truly matters. It also might not, which at this point I'm half-expecting.

jussij 7y ago

I suspect they might be happy with the $USD 500 Billion headed their way as part of the COVID-19 coronavirus stimulus bill. So if things get really bad, since the government has bailed them out once, I suspect they might be thinking there'll be more where that came from.

eeZah7Ux 7y ago

> Is the stock market connected to reality anymore? No, it's a silly game to make traders richer and everybody else poorer.

Def_Os 7y ago
Don't forget that generally close to half of traders also lose money.