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Does anyone have an explanation (preferably with source links) for why the US stock market is not absolutely tanking given the depths of economic disruption? I

by dzdt 7y ago

Does anyone have an explanation (preferably with source links) for why the US stock market is not absolutely tanking given the depths of economic disruption? I mean I get that the government is supplying stimulus, but I don't see how that can make up for the years of rebuilding that will be ahead even after we reach the bottom of the current jobs-and-small-business freefall.

adelHBN 7y ago
Jim Cramer was talking about this very issue yesterday. I have an explanation for this but will reserve it till I get a source for you (I think big investors are playing the market).
- pcurve 7y ago
  i think this one. https://www.youtube.com/watch?v=hbBQBmuhhPw https://www.youtube.com/watch?v=hbBQBmuhhPw full clip https://www.youtube.com/watch?v=9G5I6oikAYA https://www.youtube.com/watch?v=9G5I6oikAYA
  - deleted 7y ago
    [deleted]
  - adelHBN 7y ago
    Yes, you got it. Thanks.
- third_I 7y ago
  You mean a bull trap, essentially?
preommr 7y ago
The ugly truth is that no one knows. People can point to algorithms, QE, things being priced in, speculation that everything will return to normal as quickly as it stopped. Or maybe it'll go the other way and something will trigger a collapse that brings down a house of cards. Nobody knows with any reasonable amount of certainty. The best we're going to get is when all this blows over and we can do some kind of post-mortem.
nl 7y ago
Because the US is a welfare state, but it's corporate welfare. The $3 Trillion stimulus package is basically making sure US companies have strong balance sheets.
deleted 7y ago
[deleted]
Danieru 7y ago
IT DID. Do not pretend the past 2 months did not happen. You wonder why it "did not tank" but it DID TANK. It tanked when risks were unknown and everyone with a calculator could understand that exponential spread could kill large numbers. Now 2 months later the exponential spread has been controlled. Now 2 months later those who think the economy is going to disappear have already sold. Anyone holding stocks now is doing so because they think Coca-Cola is going to be worth a lot of money over the next 30 years. Short of new and surprising bad news the market has no reason to price in further uncertainty.
- nostromo 7y ago
  It tanked down to basically 2018 levels. 2009 saw lows not seen in over a decade.
- pbourke 7y ago
  Do you think the market is appropriately pricing risk? Do you feel the economic outlook and prospects for growth are the same now as they were in June 2019 when the S&P 500 was at a similar level? Honestly I think the jury’s out on whether double-digit percentages of the S&P exist in their current form 2 years from now, even with the US government interventions.
  - starbugs 7y ago
    Agreed. Price discovery feels broken to me. Maybe it is because of the FED interventions. Infinite is infinite, right? Perhaps the market is pricing in inflation instead of real growth? Perhaps it's because there's literally no other way of investing your money right now? It's really become hard to say. The downturn in the previous weeks seems to be way too weak given the current circumstances.
- quickthrowman 7y ago
  Q2 earnings season started this week, I expect the market to start pricing in reality again soon (down). There is no way we just go back to record low unemployment and high consumer confidence a month after the entire world was in lockdown.
fiblye 7y ago
Stock prices are only slightly influenced by real life.
phendrenad2 7y ago
Everyone is holding on because they think the virus will go away in a month or so.
- adelHBN 7y ago
  They may be right. But the effects of the virus on the economy will last for more than a year. The IMF is pretty clear about that.
localhost 7y ago
Ray Dalio gave a "TED Talk" a few days ago about this: https://www.youtube.com/watch?v=yrxYhv2O3wU https://www.youtube.com/watch?v=yrxYhv2O3wU. Worth watching. tl;dr He's pretty bearish and uses the depression term in conjunction with "years".
CamperBob2 7y ago
It's got to be because major institutional investors are expecting inflation.
- nostromo 7y ago
  This seems like the correct answer. When the Fed prints money, you buy SPY and real estate.
- hamilyon2 7y ago
  This explains everything. Central banks all over the world will do everything they can to prevent deflation, which means inflation absolutely will happen. Market priced simply included that as a fact. Verbal interventions work!
gnopgnip 7y ago
The stock market dropped nearly 35% from it's all time high. So it did tank. But also the value of stocks is largely speculative. And they are priced compared to the next best alternative. The bond market is not great now, and investing in real estate is impractical in some ways, and it has different risks.
keiferski 7y ago
A pretty significant part of stock valuation comes from projected future value. Since most ‘experts’ are saying that we’ll bounce back from this within 6-18 months, the markets reflect this optimism.
chewz 7y ago
Current monetary conditions are extremly good for stock market (as we have learned from post 2009 market). There is unlimited amount of money and a buyer (FED) determined to buy everything (ETF, junk bonds, baseball card) regardless of price and underlying financials. So for people who have capital there are guarateed returns in stocks. For the little guy it is other story.
- quickthrowman 7y ago
  Baseball cards have less default risk than HYG and JNK, JPow is ahead of the curve on that one.
01100011 7y ago
I'm betting on inflation in the next few years. I'm a long-term investor without enough cash or experience to invest in other inflation hedges, so sticking with stocks seems wise to me. I agree, it seems insane, but for a lot of us who don't need money for 20 years it sort of makes sense to stick with it. We've already lost our money.
AbrahamParangi 7y ago
The belief is that there is a price floor on the market. If the market drops, the Fed and Treasury will buy any assets. A price floor has an inflationary effect on prices by skewing the expected value. If you consider the price of an asset as the expected value of its probability distribution over possible values, then you cut off the negative tail of the PDF by creating a price floor, the expected value shifts significantly to positive.
megablast 7y ago
There is too much money around. The rich are so rich, and they have only a few places to store their money. The banks don't want their money, so they invest it, and one of those places is the stock market.

by dzdt 7y ago

adelHBN 7y ago

Jim Cramer was talking about this very issue yesterday. I have an explanation for this but will reserve it till I get a source for you (I think big investors are playing the market).

pcurve 7y ago
i think this one. https://www.youtube.com/watch?v=hbBQBmuhhPw https://www.youtube.com/watch?v=hbBQBmuhhPw full clip https://www.youtube.com/watch?v=9G5I6oikAYA https://www.youtube.com/watch?v=9G5I6oikAYA
- deleted 7y ago
  [deleted]
- adelHBN 7y ago
  Yes, you got it. Thanks.
third_I 7y ago
You mean a bull trap, essentially?

preommr 7y ago

The ugly truth is that no one knows. People can point to algorithms, QE, things being priced in, speculation that everything will return to normal as quickly as it stopped. Or maybe it'll go the other way and something will trigger a collapse that brings down a house of cards. Nobody knows with any reasonable amount of certainty. The best we're going to get is when all this blows over and we can do some kind of post-mortem.

nl 7y ago

Because the US is a welfare state, but it's corporate welfare. The $3 Trillion stimulus package is basically making sure US companies have strong balance sheets.

deleted 7y ago

[deleted]

Danieru 7y ago

IT DID. Do not pretend the past 2 months did not happen. You wonder why it "did not tank" but it DID TANK. It tanked when risks were unknown and everyone with a calculator could understand that exponential spread could kill large numbers. Now 2 months later the exponential spread has been controlled. Now 2 months later those who think the economy is going to disappear have already sold. Anyone holding stocks now is doing so because they think Coca-Cola is going to be worth a lot of money over the next 30 years. Short of new and surprising bad news the market has no reason to price in further uncertainty.

nostromo 7y ago
It tanked down to basically 2018 levels. 2009 saw lows not seen in over a decade.
pbourke 7y ago
Do you think the market is appropriately pricing risk? Do you feel the economic outlook and prospects for growth are the same now as they were in June 2019 when the S&P 500 was at a similar level? Honestly I think the jury’s out on whether double-digit percentages of the S&P exist in their current form 2 years from now, even with the US government interventions.
- starbugs 7y ago
  Agreed. Price discovery feels broken to me. Maybe it is because of the FED interventions. Infinite is infinite, right? Perhaps the market is pricing in inflation instead of real growth? Perhaps it's because there's literally no other way of investing your money right now? It's really become hard to say. The downturn in the previous weeks seems to be way too weak given the current circumstances.
quickthrowman 7y ago
Q2 earnings season started this week, I expect the market to start pricing in reality again soon (down). There is no way we just go back to record low unemployment and high consumer confidence a month after the entire world was in lockdown.

fiblye 7y ago

Stock prices are only slightly influenced by real life.

phendrenad2 7y ago

Everyone is holding on because they think the virus will go away in a month or so.

adelHBN 7y ago
They may be right. But the effects of the virus on the economy will last for more than a year. The IMF is pretty clear about that.

localhost 7y ago

Ray Dalio gave a "TED Talk" a few days ago about this: https://www.youtube.com/watch?v=yrxYhv2O3wU https://www.youtube.com/watch?v=yrxYhv2O3wU. Worth watching. tl;dr He's pretty bearish and uses the depression term in conjunction with "years".

CamperBob2 7y ago

It's got to be because major institutional investors are expecting inflation.

nostromo 7y ago
This seems like the correct answer. When the Fed prints money, you buy SPY and real estate.
hamilyon2 7y ago
This explains everything. Central banks all over the world will do everything they can to prevent deflation, which means inflation absolutely will happen. Market priced simply included that as a fact. Verbal interventions work!

gnopgnip 7y ago

The stock market dropped nearly 35% from it's all time high. So it did tank. But also the value of stocks is largely speculative. And they are priced compared to the next best alternative. The bond market is not great now, and investing in real estate is impractical in some ways, and it has different risks.

keiferski 7y ago

A pretty significant part of stock valuation comes from projected future value. Since most ‘experts’ are saying that we’ll bounce back from this within 6-18 months, the markets reflect this optimism.

chewz 7y ago

Current monetary conditions are extremly good for stock market (as we have learned from post 2009 market). There is unlimited amount of money and a buyer (FED) determined to buy everything (ETF, junk bonds, baseball card) regardless of price and underlying financials. So for people who have capital there are guarateed returns in stocks. For the little guy it is other story.

quickthrowman 7y ago
Baseball cards have less default risk than HYG and JNK, JPow is ahead of the curve on that one.

01100011 7y ago

I'm betting on inflation in the next few years. I'm a long-term investor without enough cash or experience to invest in other inflation hedges, so sticking with stocks seems wise to me. I agree, it seems insane, but for a lot of us who don't need money for 20 years it sort of makes sense to stick with it. We've already lost our money.

AbrahamParangi 7y ago

The belief is that there is a price floor on the market. If the market drops, the Fed and Treasury will buy any assets. A price floor has an inflationary effect on prices by skewing the expected value. If you consider the price of an asset as the expected value of its probability distribution over possible values, then you cut off the negative tail of the PDF by creating a price floor, the expected value shifts significantly to positive.

megablast 7y ago

There is too much money around. The rich are so rich, and they have only a few places to store their money. The banks don't want their money, so they invest it, and one of those places is the stock market.