7 ms·

Why Is the Stock Market Booming?

83 points by martinlaz 7y ago

caseysoftware 7y ago
The subhead gives the entire answer: Investors are betting that powerful interventions from Washington will protect the long-term profitability of major companies. Which means that the market is 100% detached from the overall economy, economic outlooks, and company earnings.. again.
- lucb1e 7y ago
  Is it bad for the economic market and current company earnings to be disjoint? I'm not an economist and perhaps I'm reading too much into the ".. again" but it sounds like you find this very bad and I don't know enough about macroeconomics to know why this is bad.
  - caseysoftware 7y ago
    It encourages risk taking towards the extremes. To make it concrete: - If you go to the casino with your own money, rational people will gamble what they can afford to lose. - If you go to the casino but are told that whatever you lose, someone else will cover your losses, how much will a rational person gamble?
- mandelbrotwurst 7y ago
  What makes this worse is that it isn't even necessary. Allowing companies (even ones that are large and considered important like airlines) to "fail" just means that they'd have to go through bankruptcy proceedings and that the owners would lose some money - it doesn't mean that their operations will shutter, or that the planes will suddenly disappear, or that everyone in those companies will suddenly be out of work. There are many examples of how this works - a recent one being PG&E in California, who filed for bankruptcy last year. Our electricity is still running and the linemen are still working.
  - naveen99 7y ago
    It might overwhelm the legal system. Then people will propose flattening the curve on bankrupcies. Maybe it’ll encourage the legal system to go all online. Somehow I doubt the courts will be powered by DocuSign faster than corona kills off the unadapted. Also, beneficiaries of bankruptcies are the same billionaires and hedge funds being bailed out now. Distressed private equity funds will be salivating over all the fire sales.
    - Red_Leaves_Flyy 7y ago
      Part of the reason why private equity loves bankruptcy is because they're so successful at divesting all the risk and costs of acquiring toxic assets. Change these dynamics by making the employees whole first.
  - deleted 7y ago
    [deleted]
  - j-walker 7y ago
    Isn't the counter-point to this the stock price of PG&E? Look at its performance over the last 5 years, it's down to ~$11 from ~$50. If the the whole market looked like this in the next year, people's 401k accounts would probably be demolished.
    - Guest42 7y ago
      Investing is inherently risky and prices ought to reflect a companies viability and performance. 401ks give a variety of options to reduce risk including money markets, bonds, and stocks in different sectors with diversification options
    - paulhodge 7y ago
      Just optimizing for 401ks is going about it wrong. $500b from the stimulus went to corporations, which indirectly boosts stock prices, which indirectly boosts 401ks. (unless the market still crashes). It's essentially trickle-down economics. If we wanted to improve individual's retirement savings then it would more effective to just divert more of that $500b to social security.
- tootie 7y ago
  That's not the whole calculation. For one, big corps are much more tolerant of the social distancing rules. Small businesses are getting crushed, but publicly-traded corps are just asking people to WFH. The stock market is all big corps. I think the other big factor is that this recession is 100% exogenous in nature. There is no major correction or uncertainty about the long-term viability of any industries. So long as big companies can dip into cash reserves and stimulus funds, they just need to weather the next 6 months and it's likely that we can return to business as usual. This is completely different from the financial meltdown of 2007 or the dotcom bubble of 2001 where entire verticals of industry were called into question and underwent sea changes in culture.
  - TenJack 7y ago
    Seems like the negative effects on companies could be longer than 6 months.
  - Saaster 7y ago
    There are major unknowns about the long-term viability of everything from airlines, hotels to ice cream parlors. Consumer behavior will change as a result of this, and more so when the second (and third...) waves of the virus start to hit in the fall. Even if the orders are lifted, a good chunk of the population is not going to venture out but take a lets-see approach. Also even at the end of the current quarantine period, companies are not going to pop out and be ready to go just as they were before. The economic landscape will look like after a hurricane has hit, companies that have laid off people are not going to be in a hurry to rehire them in my opinion. Companies are in general unlikely to rehire previously reduced folks (and reduced folks are likewise unlikely to want to return to previous employers), and are instead going to look for new candidates. What we typically see after recessions is massive movements of people between the sectors. The recovery will be a long hard slog. I'd love to share your optimism, but I think the hurricane analogy is apt, even after the sun starts to shine we'll be living in the aftermath of unprecedented economic destruction.
    - SpicyLemonZest 7y ago
      Previous pandemics of comparable severity haven't affected the long-term viability of hotels and ice cream parlors. It's unrealistic to expect that people won't want to travel or eat out. Airplanes I'll grant you - I can definitely see a world where flights swing closer to a luxury good like they were decades ago.
- ianai 7y ago
  That’s what’s telling about so many companies buying back their stocks. They’re admitting they are unable to use any further liquidity to better their business. Essentially their business is at a maximum level and any additional profit is only useful for building their market cap. They’ve considered all growth and development options and found them all less valuable than buying their own stock. Tells me their profit margins and market powers are holding the market back greatly.
  - dmoy 7y ago
    How is that at all different from companies issuing dividends? Isn't returning value to the shareholders the entire point of selling stock to investors in the first place?
    - ianai 7y ago
      Even dividends would be more thoughtful than stock buybacks. Such things are usually planned out for quarters at a time meaning they reflect some moderately deep portion of the business plan. Buybacks are just saying “we have this money in hand. We could use it for R&D to grow our business in some way (opening new branches, new plants, or just anything that could cost money up front for more money later), but instead we’re going to plaster this cash onto the facade of the business. We literally have no better use for it.”
      - dmoy 7y ago
        I mean I'm asking, how are they actually different, besides one being worse for the shareholders w.r.t. taxes? They both involve transferring $X to shareholders. Dividends are also saying "we have this amount of money on hand or cash flow, and no better use for it, so here you go" I don't see the difference. Stock buyback looks to me like dividends without the tax - imagine a dividend reinvestment plan without the middle step and the tax bill.
  - jedberg 7y ago
    That's not the whole story though. Public companies are punished greatly for making big bets that fail, or for making bets that take a long time. For example, maybe Boeing has a design for a brand new plane that can carry 1000 people and go Mach 3. But it might take them 10 years to develop such technology. The market would punish them severely for pursuing such a thing, so it makes more sense to buy back stock, otherwise they might get sued out of existence by their shareholders. The market no longer values long term bets unless you are very special (Apple, Google, somehow Tesla). All those companies have mastered marketing their long term bets.
- wisemanwillhear 7y ago
  > Which means that the market is 100% detached from the overall economy, economic outlooks, and company earnings.. again. 100% feels a little hyperbolus, but, in general, hasn't that always been true--hence the common phrase "The stock market is not the economy." The stock market only partially reflects on the economy. https://www.marketplace.org/2019/09/30/the-stock-market-is-not-the-economy/ https://www.marketplace.org/2019/09/30/the-stock-market-is-n... Why not retain or increase investments in stocks, and thereby propping stock prices up, especially if it's a long-term investment?
- Mc_Big_G 7y ago
  >Which means that the market is 100% detached from the overall economy, economic outlooks, and company earnings.. again. Which is another way of saying it's rigged.
naveen99 7y ago
Stock market already took its hit. Most real wealth is in private markets: residential real estate, private equity, and bonds. Bonds are being bailed out by the fed. Residential real estate and private equity will take some time to deflate. Then the rent collectors in residential real estate (state property taxes) will take their hit...
phonerphone 7y ago
https://www.youtube.com/watch?v=FwvZql6RToE https://www.youtube.com/watch?v=FwvZql6RToE
mikekij 7y ago
A properly functioning stock market is predicting the next ~15 years of companies' profits by weighing the prior ~15 years of companies' profits combined with their current growth. Even a 12 month period of $0 profits should decrease the NPV of a firm's future earnings by 10%, not 50%. As scary as the next 12 months appear to be, we will eventually return to a new normal, just as we did in 2010, 2004, 1990, etc.
- drchickensalad 7y ago
  Why 15 years?
  - mikekij 7y ago
    At a 10% discount rate, years 16 on don't weigh heavily into the calculation.
  - brianwawok 7y ago
    And how could anyone predict a company 15 years out? We have a real hard time with 1 year out.
    - mikekij 7y ago
      Agreed. But you make a forecast in which you calculate an "expected outcome".
      - brianwawok 7y ago
        A forecast that has nothing to do with reality is garbage.
- ntsplnkv2 7y ago
  Is the stock market actually properly functioning?
  - SpicyLemonZest 7y ago
ackbar03 7y ago
I thinks it's just way too much liquidity sloshing around. I'm guessing we're going to see a more volatility in prices in future. A tip in any direction of an asset class will cause money sloshing into it and out again at the first sign of trouble. That's just a guess. I think the text book answer of equivalent of this is just hyperinflation (except that's when the money starts flowing into real price of goods and services)
- taneq 7y ago
  I think you're right. What we've been seeing for the past 10+ years with wages and real-world earnings staying about the same isn't some weird effect on salaries. It's rapidly dropping goods prices (which everyone's been asking about - why aren't prices of basic goods dropping?) due to globalisation, automation and economies of scale, combined with hyperinflation.
  - tdfx 7y ago
    There's been some discussion that wages haven't actually been flat at all, just take home earnings. The difference is theorized to have been siphoned off by rapidly increasing health insurance premiums [1]. [1] http://laborcenter.berkeley.edu/health-care-costs-under-job-based-plans-have-grown-rapidly-while-wages-remained-flat/ http://laborcenter.berkeley.edu/health-care-costs-under-job-...
- ethbro 7y ago
  I'm curious what the end effect of reducing retail trading fees to $0 at online brokerages will be. I think (?) retail isn't much of the overall market, but it certainly seems like it would increase the agility of retail investment flows.
  - raincom 7y ago
    Retail won't move the overall market. However, it can move meme stocks like TSLA, SPCE, etc.
- snarf21 7y ago
chrisgd 7y ago
A lot of people will say that earnings expectations are higher than the current price projected and they bought. I think it is more likely that after the first up day, a lot of people saw that they could have made $4 / share (hypothetically) and started buying. Personally, I am waiting to see what 1Q earnings are and what 2Q projections look like for a few names I like. My 401k hasn’t changed through all of this, just any spare change I have for my fidelity account. Even fertility, dermatology and orthopedic doctors are all closed still.
baby 7y ago
Paywall. Flagged
adventured 7y ago
http://archive.is/oWxNu http://archive.is/oWxNu
zenlot 7y ago
Bull trap.
throwaway8291 7y ago
My brief analysis tells me that there will be some grinding down in Q2 with a negative peak in Q3. While the virus seems to be "managed", the consequences of millions of people dropping out of the workforce in the first world is not that pronounced. We will see bank failures and maybe dozens of cascades, all leading to the point where someone has to stand up and swallow it. Solid states go into deep debt today, previously failed states will chew on it for the decade to come.
Mc_Big_G 7y ago
Because the market is rigged. The idea that it's a free market is ridiculously dumb.
mattnewton 7y ago
Where does all the money go if not in stocks? The government is pretty preoccupied with the current stock market, for better or for worse. If they are unable to fix the the economy and appease shareholders, the thinking might be that we have bigger problems with the value of the dollars themselves.
nostromo 7y ago
It seems insane to me that the market is now higher than it was at the end of 2018, given that entire sections of our economy are closed, default risk for almost every business is up, and unemployment claims are making new record highs. In 2018 the fed was reducing their balance sheet - which seems to be the most important driver to equity prices rather than fundamentals.
- 6510 7y ago
  If I look at people buying the other zoom I cant help but think the stocks might have little relation with reality. Or put comically: I'm sure all video games are seeing a surge in players with people in self-quarantine.
- bluGill 7y ago
  Not to me markets are a 10+ year term investment, in 10 years this will be a memory and things will be back on track
  - icedchai 7y ago
    Yep. 2008 was the time to get in cheap. This is the same thing.
Beefin 7y ago
My thought is that the majority of the markets rely on high frequency trading algorithms, which base their models off historical data. Given this is unprecedented times, the models are going haywire because nothing fits.
CyanLite4 7y ago
1. These large 20%+ rallies are always common in bear markets. 2. The Fed has committed all told nearly 10 trillion dollars, maybe more. 3. Very little macro data has been released. Market is pricing in a V-shaped recovery which isn’t out of the question if we can open up in May. Having said all of this, I think we head lower as the health crisis turns into a really bad recession. There may not be jobs for these workers to go back to.
- gnulinux 7y ago
  If we open up in May, we will likely experience an even worse second peak.
- soperj 7y ago
  >Market is pricing in a V-shaped recovery which isn’t out of the question if we can open up in May. Market was due for a fall, this was just what kicked it into gear. I doubt it'll be V shaped. I also doubt that you'll be opened back up in May. I don't see Italy opening up any time soon, and New State alone looks like it'll be worse than Italy.
  - SpicyLemonZest 7y ago
    I'm not sure what you mean by "alone" here. New York is by far the worst hit area of the US; many states are doing no worse than Denmark or Austria, which are going to start opening up next week.
    - soperj 7y ago
      Denmark completely shut its borders. Austria has made everyone wear masks, and have been shutdown for a long time. US states like Mississippi are still arguing that everyone should be essential. There are at 11 states with double the number of confirmed cases as Denmark, and I don't see any of them actually slowing down currently. They're all experiencing 4 times more daily cases than Denmark.
- solotronics 7y ago
  Won't this essentially end up with the banks owning every company?
splitrocket 7y ago
Everything you need to know about the wisdom of the stock market can be easily discerned from this single, simple fact: They believed Donald Trump when he claimed Saudi Arabia and Russia would cooperate to raise oil prices. They did not.
pepy 7y ago
Welcome to the new America where the debt is public but the profit is private
hanoz 7y ago
Would this be the same market which completely ignored the epidemic in the Far East and the obvious implications of its trajectory, until the morning after the weekend it hit Italy?
lordnacho 7y ago
The authorities have essentially said they aren't going to let businesses fail. Even though that's what limited liability is for, but I digress. So if there's a much lower chance of failure, prices for equities can be higher. Corporate bonds too. But I'm not so sure this bounce will last. There's a fair chance this is some sort of short squeeze dynamic. Longer term we'll see what the damage to the economy actually is, whether people simply go back to how it was or things have actually changed.
thysultan 7y ago
Not yet booming, mealy recovering.
- gnulinux 7y ago
  It's almost the same as where it was Jan 2019. Business is nowhere near as good as it was in Jan 2019, so clearly there is a discrepancy.
axegon_ 7y ago
There is a bigger picture here: there is undeniably a crisis but it's an external factor as far as the economy is concerned. Fact of the matter is, plenty of big businesses are doing better than ever: everything online is exploding, online shopping, payments, entertainments, online education as well as delivery services. And a more specific example(for the sake of illustration), so are many grocery stores: I have 3 small grocery shops around me in a quiet and residential area and they can take a breath. Even after the toilet paper crisis ended, every time I look out the window I see at least 5 vans unloading. And we are talking really tiny shops: the combined are of all 3 combined would probably not cover an area of 100 square meters. With that you have large production lines, warehouses, transportation companies and logistics fully operational and have probably reached their maximum capacity. While tourism, air travel, restaurants(those that don't deliver food) and pubs, public events, concerts, all all of those will suffer for years to come, others will flourish. And with all that, I'd argue that a lot of new markets will appear. I'm well aware it's too soon to tell for certain but that's what seems very plausible to me.
- eshyong 7y ago
  While I agree with some of your points re: online companies doing well, I don't see how you can take anecdata about local grocery stores and extrapolate it to the rest of the economy. Also, don't forget that 16 million (that's 5%!) Americans are unemployed right now. Can you imagine the damage that's going to do to businesses across the country? If that isn't a sign that a recession is coming, I don't know what is.
  - AWildC182 7y ago
    Best I can tell, the stock market is trying to look mid-term and investors are assuming (read speculating) that his whole thing will blow over and life will resume its normal cadence. Obviously this isn't reality but if you have enough money to be considered an "investor", the 16 million unemployed aren't the people in the forefront of your mind. They're also probably watching the covid task force briefings while wearing the same rose colored glasses that our mango unchained has.
  - 7y ago
cryptica 7y ago
It's interesting to note that gold has significantly outperformed S&P500 over the last 5 years (and so has Bitcoin and many other 0-yield assets). If we were to redraw stock charts using gold as the x axis (instead of $ USD), we would realize that company stocks have in fact all been dropping for the last 5 years. The US dollar is not so different from the Venezuelan bolivar, it's also inflating and making the stock market appear to grow... But it's not the value of the stock which is growing, it's the value of the dollar which is shrinking (and so are all other fiat currencies which are pegged to it).
jrockway 7y ago
Stock is a bet on the company until the end of time, and 30 years from now, nobody will remember the Great Pandemic of 2020. Even if we imagine a worst case worse than the predictions, things will probably be fine for the economy. If 10% of the human race dies tomorrow, that just means everyone else needs to do 10% more work; a 40 hour workweek becomes a 44 hour workweek. (Obviously if sucks if you or your loved ones die. But the economy doesn't care.)
- volkk 7y ago
  this doesn't make any sense. by that logic, why do recessions simply not exist since in 30+ years we'll probably have overcome whatever current problem we're facing now
dustingetz 7y ago
This chart is why https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL
rafiki6 7y ago
I've read so much amateur and professional analysis on what's happening. The one common thing I realized is it's all entirely speculative and offers little to no empiricism (stats aren't empirical evidence, they're an explanation of data). Absolutely no one knows what's happening right now. There are many explanations that are attempting to rationalize the behavior of the markets but the reality is the system has gotten so complex and there are so many derivative financial instruments and institutions who make their living off of some type of market manipulation that what we are likely witnessing is a confounding of different mechanisms all occurring at once. The one absolutely conclusive thing you can gather from all of this is the prices of stocks have been and will likely continue to be detached from fundamentals for the foreseeable future. My guess is that a future economist will gain their fame studying what is happening right now and creating a new theory out of it.
maxcan 7y ago
One word: inflation. The government is turning on the printing presses and while investors expect real returns to take a hit, they expect nominal returns to do fine. In an inflationary environment, assets like equities will outperform.
totemandtoken 7y ago
I'm probably wrong about this and I'll probably get told so and downvoted to hell, but to throw my $.02 in to the mix I think the fundamental issue is that the stock market doesn't reflect reality at all anymore. Which isn't a novel point, a bunch of other commenters are saying the same thing. I think the only thing I have to add is that a small army of forex bots, automated buybacks, and zombie index funds has made it so that the stock market is programmed to never not boom. A market that reflects reality would be governed by supply and demand, not by seeing a ticker go up or a graph go up and to the right. But that's what investors want, so that's what all these mechanical interventions are optimized to do. So why is the stock market booming? Because that's what it was programmed to do. (Yes, yes, cite my sources, but it's a Friday and I'm lazy)
simonblack 7y ago
The 'Greater Fool Theory' seems to be the main one. No matter how silly it is to buy something that is overpriced, it's practically certain that a 'greater fool' will come along and buy it from you. You profit. https://www.wisegeek.com/what-is-the-greater-fool-theory.htm#didyouknowout https://www.wisegeek.com/what-is-the-greater-fool-theory.htm...

83 points by martinlaz 7y ago

The subhead gives the entire answer: Investors are betting that powerful interventions from Washington will protect the long-term profitability of major companies. Which means that the market is 100% detached from the overall economy, economic outlooks, and company earnings.. again.

lucb1e 7y ago
Is it bad for the economic market and current company earnings to be disjoint? I'm not an economist and perhaps I'm reading too much into the ".. again" but it sounds like you find this very bad and I don't know enough about macroeconomics to know why this is bad.
- caseysoftware 7y ago
  It encourages risk taking towards the extremes. To make it concrete: - If you go to the casino with your own money, rational people will gamble what they can afford to lose. - If you go to the casino but are told that whatever you lose, someone else will cover your losses, how much will a rational person gamble?
mandelbrotwurst 7y ago
What makes this worse is that it isn't even necessary. Allowing companies (even ones that are large and considered important like airlines) to "fail" just means that they'd have to go through bankruptcy proceedings and that the owners would lose some money - it doesn't mean that their operations will shutter, or that the planes will suddenly disappear, or that everyone in those companies will suddenly be out of work. There are many examples of how this works - a recent one being PG&E in California, who filed for bankruptcy last year. Our electricity is still running and the linemen are still working.
- naveen99 7y ago
  It might overwhelm the legal system. Then people will propose flattening the curve on bankrupcies. Maybe it’ll encourage the legal system to go all online. Somehow I doubt the courts will be powered by DocuSign faster than corona kills off the unadapted. Also, beneficiaries of bankruptcies are the same billionaires and hedge funds being bailed out now. Distressed private equity funds will be salivating over all the fire sales.
  - Red_Leaves_Flyy 7y ago
    Part of the reason why private equity loves bankruptcy is because they're so successful at divesting all the risk and costs of acquiring toxic assets. Change these dynamics by making the employees whole first.
- deleted 7y ago
  [deleted]
- j-walker 7y ago
  Isn't the counter-point to this the stock price of PG&E? Look at its performance over the last 5 years, it's down to ~$11 from ~$50. If the the whole market looked like this in the next year, people's 401k accounts would probably be demolished.
  - Guest42 7y ago
    Investing is inherently risky and prices ought to reflect a companies viability and performance. 401ks give a variety of options to reduce risk including money markets, bonds, and stocks in different sectors with diversification options
  - paulhodge 7y ago
    Just optimizing for 401ks is going about it wrong. $500b from the stimulus went to corporations, which indirectly boosts stock prices, which indirectly boosts 401ks. (unless the market still crashes). It's essentially trickle-down economics. If we wanted to improve individual's retirement savings then it would more effective to just divert more of that $500b to social security.
tootie 7y ago
That's not the whole calculation. For one, big corps are much more tolerant of the social distancing rules. Small businesses are getting crushed, but publicly-traded corps are just asking people to WFH. The stock market is all big corps. I think the other big factor is that this recession is 100% exogenous in nature. There is no major correction or uncertainty about the long-term viability of any industries. So long as big companies can dip into cash reserves and stimulus funds, they just need to weather the next 6 months and it's likely that we can return to business as usual. This is completely different from the financial meltdown of 2007 or the dotcom bubble of 2001 where entire verticals of industry were called into question and underwent sea changes in culture.
- TenJack 7y ago
  Seems like the negative effects on companies could be longer than 6 months.
- Saaster 7y ago
  There are major unknowns about the long-term viability of everything from airlines, hotels to ice cream parlors. Consumer behavior will change as a result of this, and more so when the second (and third...) waves of the virus start to hit in the fall. Even if the orders are lifted, a good chunk of the population is not going to venture out but take a lets-see approach. Also even at the end of the current quarantine period, companies are not going to pop out and be ready to go just as they were before. The economic landscape will look like after a hurricane has hit, companies that have laid off people are not going to be in a hurry to rehire them in my opinion. Companies are in general unlikely to rehire previously reduced folks (and reduced folks are likewise unlikely to want to return to previous employers), and are instead going to look for new candidates. What we typically see after recessions is massive movements of people between the sectors. The recovery will be a long hard slog. I'd love to share your optimism, but I think the hurricane analogy is apt, even after the sun starts to shine we'll be living in the aftermath of unprecedented economic destruction.
  - SpicyLemonZest 7y ago
    Previous pandemics of comparable severity haven't affected the long-term viability of hotels and ice cream parlors. It's unrealistic to expect that people won't want to travel or eat out. Airplanes I'll grant you - I can definitely see a world where flights swing closer to a luxury good like they were decades ago.
ianai 7y ago
That’s what’s telling about so many companies buying back their stocks. They’re admitting they are unable to use any further liquidity to better their business. Essentially their business is at a maximum level and any additional profit is only useful for building their market cap. They’ve considered all growth and development options and found them all less valuable than buying their own stock. Tells me their profit margins and market powers are holding the market back greatly.
- dmoy 7y ago
  How is that at all different from companies issuing dividends? Isn't returning value to the shareholders the entire point of selling stock to investors in the first place?
  - ianai 7y ago
    Even dividends would be more thoughtful than stock buybacks. Such things are usually planned out for quarters at a time meaning they reflect some moderately deep portion of the business plan. Buybacks are just saying “we have this money in hand. We could use it for R&D to grow our business in some way (opening new branches, new plants, or just anything that could cost money up front for more money later), but instead we’re going to plaster this cash onto the facade of the business. We literally have no better use for it.”
    - dmoy 7y ago
      I mean I'm asking, how are they actually different, besides one being worse for the shareholders w.r.t. taxes? They both involve transferring $X to shareholders. Dividends are also saying "we have this amount of money on hand or cash flow, and no better use for it, so here you go" I don't see the difference. Stock buyback looks to me like dividends without the tax - imagine a dividend reinvestment plan without the middle step and the tax bill.
- jedberg 7y ago
  That's not the whole story though. Public companies are punished greatly for making big bets that fail, or for making bets that take a long time. For example, maybe Boeing has a design for a brand new plane that can carry 1000 people and go Mach 3. But it might take them 10 years to develop such technology. The market would punish them severely for pursuing such a thing, so it makes more sense to buy back stock, otherwise they might get sued out of existence by their shareholders. The market no longer values long term bets unless you are very special (Apple, Google, somehow Tesla). All those companies have mastered marketing their long term bets.
wisemanwillhear 7y ago
> Which means that the market is 100% detached from the overall economy, economic outlooks, and company earnings.. again. 100% feels a little hyperbolus, but, in general, hasn't that always been true--hence the common phrase "The stock market is not the economy." The stock market only partially reflects on the economy. https://www.marketplace.org/2019/09/30/the-stock-market-is-not-the-economy/ https://www.marketplace.org/2019/09/30/the-stock-market-is-n... Why not retain or increase investments in stocks, and thereby propping stock prices up, especially if it's a long-term investment?
Mc_Big_G 7y ago
>Which means that the market is 100% detached from the overall economy, economic outlooks, and company earnings.. again. Which is another way of saying it's rigged.

naveen99 7y ago

Stock market already took its hit. Most real wealth is in private markets: residential real estate, private equity, and bonds. Bonds are being bailed out by the fed. Residential real estate and private equity will take some time to deflate. Then the rent collectors in residential real estate (state property taxes) will take their hit...

phonerphone 7y ago

https://www.youtube.com/watch?v=FwvZql6RToE https://www.youtube.com/watch?v=FwvZql6RToE

mikekij 7y ago

A properly functioning stock market is predicting the next ~15 years of companies' profits by weighing the prior ~15 years of companies' profits combined with their current growth. Even a 12 month period of $0 profits should decrease the NPV of a firm's future earnings by 10%, not 50%. As scary as the next 12 months appear to be, we will eventually return to a new normal, just as we did in 2010, 2004, 1990, etc.

drchickensalad 7y ago
Why 15 years?
- mikekij 7y ago
  At a 10% discount rate, years 16 on don't weigh heavily into the calculation.
- brianwawok 7y ago
  And how could anyone predict a company 15 years out? We have a real hard time with 1 year out.
  - mikekij 7y ago
    Agreed. But you make a forecast in which you calculate an "expected outcome".
    - brianwawok 7y ago
      A forecast that has nothing to do with reality is garbage.
ntsplnkv2 7y ago
Is the stock market actually properly functioning?
- SpicyLemonZest 7y ago

ackbar03 7y ago

I thinks it's just way too much liquidity sloshing around. I'm guessing we're going to see a more volatility in prices in future. A tip in any direction of an asset class will cause money sloshing into it and out again at the first sign of trouble. That's just a guess. I think the text book answer of equivalent of this is just hyperinflation (except that's when the money starts flowing into real price of goods and services)

taneq 7y ago
I think you're right. What we've been seeing for the past 10+ years with wages and real-world earnings staying about the same isn't some weird effect on salaries. It's rapidly dropping goods prices (which everyone's been asking about - why aren't prices of basic goods dropping?) due to globalisation, automation and economies of scale, combined with hyperinflation.
- tdfx 7y ago
  There's been some discussion that wages haven't actually been flat at all, just take home earnings. The difference is theorized to have been siphoned off by rapidly increasing health insurance premiums [1]. [1] http://laborcenter.berkeley.edu/health-care-costs-under-job-based-plans-have-grown-rapidly-while-wages-remained-flat/ http://laborcenter.berkeley.edu/health-care-costs-under-job-...
ethbro 7y ago
I'm curious what the end effect of reducing retail trading fees to $0 at online brokerages will be. I think (?) retail isn't much of the overall market, but it certainly seems like it would increase the agility of retail investment flows.
- raincom 7y ago
  Retail won't move the overall market. However, it can move meme stocks like TSLA, SPCE, etc.
snarf21 7y ago

chrisgd 7y ago

A lot of people will say that earnings expectations are higher than the current price projected and they bought. I think it is more likely that after the first up day, a lot of people saw that they could have made $4 / share (hypothetically) and started buying. Personally, I am waiting to see what 1Q earnings are and what 2Q projections look like for a few names I like. My 401k hasn’t changed through all of this, just any spare change I have for my fidelity account. Even fertility, dermatology and orthopedic doctors are all closed still.

baby 7y ago

Paywall. Flagged

adventured 7y ago

http://archive.is/oWxNu http://archive.is/oWxNu

zenlot 7y ago

Bull trap.

throwaway8291 7y ago

My brief analysis tells me that there will be some grinding down in Q2 with a negative peak in Q3. While the virus seems to be "managed", the consequences of millions of people dropping out of the workforce in the first world is not that pronounced. We will see bank failures and maybe dozens of cascades, all leading to the point where someone has to stand up and swallow it. Solid states go into deep debt today, previously failed states will chew on it for the decade to come.

Mc_Big_G 7y ago

Because the market is rigged. The idea that it's a free market is ridiculously dumb.

mattnewton 7y ago

Where does all the money go if not in stocks? The government is pretty preoccupied with the current stock market, for better or for worse. If they are unable to fix the the economy and appease shareholders, the thinking might be that we have bigger problems with the value of the dollars themselves.

nostromo 7y ago

It seems insane to me that the market is now higher than it was at the end of 2018, given that entire sections of our economy are closed, default risk for almost every business is up, and unemployment claims are making new record highs. In 2018 the fed was reducing their balance sheet - which seems to be the most important driver to equity prices rather than fundamentals.

6510 7y ago
If I look at people buying the other zoom I cant help but think the stocks might have little relation with reality. Or put comically: I'm sure all video games are seeing a surge in players with people in self-quarantine.
bluGill 7y ago
Not to me markets are a 10+ year term investment, in 10 years this will be a memory and things will be back on track
- icedchai 7y ago
  Yep. 2008 was the time to get in cheap. This is the same thing.

Beefin 7y ago

My thought is that the majority of the markets rely on high frequency trading algorithms, which base their models off historical data. Given this is unprecedented times, the models are going haywire because nothing fits.

CyanLite4 7y ago

1. These large 20%+ rallies are always common in bear markets. 2. The Fed has committed all told nearly 10 trillion dollars, maybe more. 3. Very little macro data has been released. Market is pricing in a V-shaped recovery which isn’t out of the question if we can open up in May. Having said all of this, I think we head lower as the health crisis turns into a really bad recession. There may not be jobs for these workers to go back to.

gnulinux 7y ago
If we open up in May, we will likely experience an even worse second peak.
soperj 7y ago
>Market is pricing in a V-shaped recovery which isn’t out of the question if we can open up in May. Market was due for a fall, this was just what kicked it into gear. I doubt it'll be V shaped. I also doubt that you'll be opened back up in May. I don't see Italy opening up any time soon, and New State alone looks like it'll be worse than Italy.
- SpicyLemonZest 7y ago
  I'm not sure what you mean by "alone" here. New York is by far the worst hit area of the US; many states are doing no worse than Denmark or Austria, which are going to start opening up next week.
  - soperj 7y ago
    Denmark completely shut its borders. Austria has made everyone wear masks, and have been shutdown for a long time. US states like Mississippi are still arguing that everyone should be essential. There are at 11 states with double the number of confirmed cases as Denmark, and I don't see any of them actually slowing down currently. They're all experiencing 4 times more daily cases than Denmark.
solotronics 7y ago
Won't this essentially end up with the banks owning every company?

splitrocket 7y ago

Everything you need to know about the wisdom of the stock market can be easily discerned from this single, simple fact: They believed Donald Trump when he claimed Saudi Arabia and Russia would cooperate to raise oil prices. They did not.

pepy 7y ago

Welcome to the new America where the debt is public but the profit is private

hanoz 7y ago

Would this be the same market which completely ignored the epidemic in the Far East and the obvious implications of its trajectory, until the morning after the weekend it hit Italy?

lordnacho 7y ago

The authorities have essentially said they aren't going to let businesses fail. Even though that's what limited liability is for, but I digress. So if there's a much lower chance of failure, prices for equities can be higher. Corporate bonds too. But I'm not so sure this bounce will last. There's a fair chance this is some sort of short squeeze dynamic. Longer term we'll see what the damage to the economy actually is, whether people simply go back to how it was or things have actually changed.

thysultan 7y ago

Not yet booming, mealy recovering.

gnulinux 7y ago
It's almost the same as where it was Jan 2019. Business is nowhere near as good as it was in Jan 2019, so clearly there is a discrepancy.

axegon_ 7y ago

There is a bigger picture here: there is undeniably a crisis but it's an external factor as far as the economy is concerned. Fact of the matter is, plenty of big businesses are doing better than ever: everything online is exploding, online shopping, payments, entertainments, online education as well as delivery services. And a more specific example(for the sake of illustration), so are many grocery stores: I have 3 small grocery shops around me in a quiet and residential area and they can take a breath. Even after the toilet paper crisis ended, every time I look out the window I see at least 5 vans unloading. And we are talking really tiny shops: the combined are of all 3 combined would probably not cover an area of 100 square meters. With that you have large production lines, warehouses, transportation companies and logistics fully operational and have probably reached their maximum capacity. While tourism, air travel, restaurants(those that don't deliver food) and pubs, public events, concerts, all all of those will suffer for years to come, others will flourish. And with all that, I'd argue that a lot of new markets will appear. I'm well aware it's too soon to tell for certain but that's what seems very plausible to me.

eshyong 7y ago
While I agree with some of your points re: online companies doing well, I don't see how you can take anecdata about local grocery stores and extrapolate it to the rest of the economy. Also, don't forget that 16 million (that's 5%!) Americans are unemployed right now. Can you imagine the damage that's going to do to businesses across the country? If that isn't a sign that a recession is coming, I don't know what is.
- AWildC182 7y ago
  Best I can tell, the stock market is trying to look mid-term and investors are assuming (read speculating) that his whole thing will blow over and life will resume its normal cadence. Obviously this isn't reality but if you have enough money to be considered an "investor", the 16 million unemployed aren't the people in the forefront of your mind. They're also probably watching the covid task force briefings while wearing the same rose colored glasses that our mango unchained has.
- 7y ago

cryptica 7y ago

It's interesting to note that gold has significantly outperformed S&P500 over the last 5 years (and so has Bitcoin and many other 0-yield assets). If we were to redraw stock charts using gold as the x axis (instead of $ USD), we would realize that company stocks have in fact all been dropping for the last 5 years. The US dollar is not so different from the Venezuelan bolivar, it's also inflating and making the stock market appear to grow... But it's not the value of the stock which is growing, it's the value of the dollar which is shrinking (and so are all other fiat currencies which are pegged to it).

jrockway 7y ago

Stock is a bet on the company until the end of time, and 30 years from now, nobody will remember the Great Pandemic of 2020. Even if we imagine a worst case worse than the predictions, things will probably be fine for the economy. If 10% of the human race dies tomorrow, that just means everyone else needs to do 10% more work; a 40 hour workweek becomes a 44 hour workweek. (Obviously if sucks if you or your loved ones die. But the economy doesn't care.)

volkk 7y ago
this doesn't make any sense. by that logic, why do recessions simply not exist since in 30+ years we'll probably have overcome whatever current problem we're facing now

dustingetz 7y ago

This chart is why https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL

rafiki6 7y ago

I've read so much amateur and professional analysis on what's happening. The one common thing I realized is it's all entirely speculative and offers little to no empiricism (stats aren't empirical evidence, they're an explanation of data). Absolutely no one knows what's happening right now. There are many explanations that are attempting to rationalize the behavior of the markets but the reality is the system has gotten so complex and there are so many derivative financial instruments and institutions who make their living off of some type of market manipulation that what we are likely witnessing is a confounding of different mechanisms all occurring at once. The one absolutely conclusive thing you can gather from all of this is the prices of stocks have been and will likely continue to be detached from fundamentals for the foreseeable future. My guess is that a future economist will gain their fame studying what is happening right now and creating a new theory out of it.

maxcan 7y ago

One word: inflation. The government is turning on the printing presses and while investors expect real returns to take a hit, they expect nominal returns to do fine. In an inflationary environment, assets like equities will outperform.

totemandtoken 7y ago

I'm probably wrong about this and I'll probably get told so and downvoted to hell, but to throw my $.02 in to the mix I think the fundamental issue is that the stock market doesn't reflect reality at all anymore. Which isn't a novel point, a bunch of other commenters are saying the same thing. I think the only thing I have to add is that a small army of forex bots, automated buybacks, and zombie index funds has made it so that the stock market is programmed to never not boom. A market that reflects reality would be governed by supply and demand, not by seeing a ticker go up or a graph go up and to the right. But that's what investors want, so that's what all these mechanical interventions are optimized to do. So why is the stock market booming? Because that's what it was programmed to do. (Yes, yes, cite my sources, but it's a Friday and I'm lazy)

simonblack 7y ago

The 'Greater Fool Theory' seems to be the main one. No matter how silly it is to buy something that is overpriced, it's practically certain that a 'greater fool' will come along and buy it from you. You profit. https://www.wisegeek.com/what-is-the-greater-fool-theory.htm#didyouknowout https://www.wisegeek.com/what-is-the-greater-fool-theory.htm...