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I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

adrr 7y ago
Fed is printing money and it needs to go somewhere. They are buying everyone’s distressed assets including dumping money into junk bond etfs.
- JKCalhoun 7y ago
  Stock market is going up because it's going up. Wait 'til the music starts and there's a scramble for seats.
  - pravda 7y ago
    >Wait 'til the music starts and there's a scramble for seats. You meant 'stops'.
    - JKCalhoun 7y ago
      Yes. :-)
seibelj 7y ago
You will get 100 different answers. I like the argument that inflation is actually high, but our outsourcing of goods that make up the consumer inflation algorithm to cheaper countries makes it seem like inflation is low, but goods that can't be outsourced (education, housing, startup unicorns, financial assets like stocks) were eating the excess inflation that had no other place to go. So the real value of stocks is lower when adjusted for true inflation, but everyone claims inflation is minuscule / nonexistent so we can pretend that printing trillions of dollars and handing it to banks is having no effect.
Kye 7y ago
The list of companies on it should give you an idea: https://en.wikipedia.org/wiki/List_of_S%26P_500_companies https://en.wikipedia.org/wiki/List_of_S%26P_500_companies It's mostly companies that do well in any market or have a habit of surviving massive market disruptions. Sort by founded date. Almost all of them are 2000 or older.
- jhallenworld 7y ago
  To add to this: even within the S&P-500, the better ones seem to do much better than the average ones, so the NASDAQ-100 outperforms the S&P-500. As an investor: Very happy with my "QQQ" (NASDAQ-100 ETF) investment, but my more diverse retirement portfolio is nowhere near as good. I have recently been buying hard hit stocks that I think will survive over the long term: Disney, Marriott.. As an employee: well, the trick is to remain employed.
  - basch 7y ago
    QQQ was a good growth bet, but so is pure AMZN. 50% of QQQ is FAAAMIN (Facebook, Amazon, Apple, Alphabet, Microsoft, Intel, Netflix, with Cisco right below but they dont fit the acronym.) https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=1&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=5&absoluteDeviation=35.0&relativeDeviation=30.0&showYield=false&reinvestDividends=true&benchmark=-1&benchmarkSymbol=QQQ&portfolioNames=true&portfolioName1=NASDAQ+100+Leveraged+Parity+Risk+on+Margin&portfolioName2=NASDAQ+100+Leveraged+Parity+Risk+ETFs&portfolioName3=Amazon&symbol1=QQQ&allocation1_1=165&symbol2=TLT&allocation2_1=135&symbol3=CASHX&allocation3_1=-200&symbol4=TQQQ&allocation4_2=55&symbol5=TMF&allocation5_2=45&symbol6=AMZN&allocation6_3=100 https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t... Investing in Amazon is almost as profitable as a 3x leveraged parity risk bet on QQQ. I get what you are saying, "buy when people are fearful", but do you really think it will be more profitable than betting on the top 6 tech stocks?
    - jhallenworld 7y ago
freeone3000 7y ago
Stock market is essentially a sentiment graph. There's no need for it to be linked to any underlying useful metric - it's entirely likely people are investing in stocks simply because all other investments are worse.
- harryh 7y ago
  This is true in the short run, but not in the long run.
  - metalliqaz 7y ago
    I think all you're saying is that eventually sentiment bends toward economic reality.
    - harryh 7y ago
      No, I'm saying that eventually the value of a company is based on actual economic reality and not sentiment. Companies are either profitable or not. They either grow or not. In the end, share prices are based on these things, not just the whims of investors. The stock market is not trading in baseball cards.
  - eyeundersand 7y ago
    "In the long run, we are all dead." ~Keynes
    - kyuudou 7y ago
      Keynes, to my knowledge, never had children. The future for one's offspring definitely extends one's field of cares to give, in my opinion.
- jariel 7y ago
  Obviously sentiment is a factor, but there are a million analysts with very complicated and dense spreadsheets trying to include every single detail to come up with their forecasts. It's nut just instinct.
shakopeeant 7y ago
Once all the small businesses close where do you think all the money is going to go?
bobobob420 7y ago
?? What is the purpose in comparing metrics about our economy recessing based on production of goods vs a market for pieces of company ownership. They are not and never have been the same and there is no law they must follow the same trend
- CabSauce 7y ago
  Sure, if you ignore that the companies are the ones producing and selling those goods. And that their well-being depends on how many they sell.
  - melenaboija 7y ago
    Agree, plus the value of my house and my 401k are highly correlated to the metrics, which means even not being an investor makes me worry about them
hobbescotch 7y ago
AFAIK stocks are up due to the announcements that the lock downs will be ending. However, the surge seems rather short sighted: you can coax stores into reopening, but you can’t force people to go out and shop in them like they used to.
- tryptophan 7y ago
  I don't think many people, including me, will need much if any coaxing at all.
- JKCalhoun 7y ago
  Worse, there are a lot more unemployed now who won't be shopping at all.
londons_explore 7y ago
The market is denominated in dollars. If the dollar gets less valuable due to the government printing cash (or buying bonds or issuing loans they are expected to later write off), then things denominated in dollars increase, even if the real value remains unchanged. It's hard to tell if the dollar is weakening, because most other currencies are in the exact same position.
- alexpetralia 7y ago
  Yes in fact the only thing you wouldn't want to hold is dollars; you'd want to hold things that will earn more dollars in the future (an inflation hedge), such as equities. Then you'd only care about FX rates (to the extent you are purchasing internationally), and I don't see any indication the FX futures market is moving against the dollar.
  - silicon2401 7y ago
    if holding onto dollars right now is bad, could you suggest what would be a good place to put cash?
    - alexpetralia 7y ago
      I did use the conditional "would" because I don't think the market is actually expecting inflation, which would erode the value of dollars. Expected inflation can be calculated as the difference between a Treasury and a TIPS of the same tenor - say 5 years. Treasury yields: https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i... TIPS: https://www.wsj.com/market-data/bonds/tips https://www.wsj.com/market-data/bonds/tips So 5 years out, the expected inflation is .37 - (-.418) = .788%; pretty low. In other words, the market doesn't expect all this money printing to translate into general inflation (as measured by the CPI). Personally I would be dollar-cost averaging into equities.
    - elliotec 7y ago
      I don't think they're strictly saying holding dollars is bad right now, just that it could be if inflation became a thing, which is not happening because as said by someone else, almost all other currencies are in the same boat. Plus everything is based on the dollar in the world economy. To answer your question though, if we were in a place where keeping cash was becoming a problem, that's where assets come in like stocks, bonds, real estate.
scottLobster 7y ago
Best explanation I've found: https://www.youtube.com/watch?v=0ECqDaPjjV0 https://www.youtube.com/watch?v=0ECqDaPjjV0 Can't post this enough these days. TLDR is that the stock market is forward looking. It goes up or down based on whether conditions are better or worse than EXPECTED. If reality is in line with expectations then nothing happens. If it's better than expected stocks go up, if it's worse than expected stocks go down. The current shitty economy has already been priced in as far as can be known.
- matthewdgreen 7y ago
  The last time the S&P price was at today's level, it was October 2019. The market is essentially saying that the forward-looking expectations of the companies in the S&P today are similar to what they were in October 2019. I'm not an expert here -- who knows, maybe they're right -- but I find that judgement very hard to take seriously.
  - scottLobster 7y ago
    I agree, but the bet seems to be (in so far as anyone can judge what the market is thinking) that the multi-trillion economic stimulus combined with other credit lines corporations are taking out will do their job on a macroeconomic scale despite anecdotal stories about it being inadequate for individuals. I don't think that's the case, but I don't have any data to say it's unreasonable. Plus there is the expectation that once a vaccine is developed/distributed it'll be the roaring 2020s as everything recovers fully, which I largely agree with. So if you're looking at record profits less than 2 years out, makes for a pretty rosy outlook. That of course is assuming there aren't any particularly economically devastating effects from the oil price wars/demand drop, educational lapses, hurricanes/wild fires on top of corona-virus leading to a renewed spike during evacuations, and any other manner of things that can go wrong. That's where I'm generally making the opposite bet, there's just too many unknowns and plausible disasters that can happen, and if even one of them comes true things get a lot worse quickly. But that's pure speculation/conservatism on my part.
- q084yn39cptyth 7y ago
GhostVII 7y ago
The S&P crashed 35% before going up again, and is still significantly lower than it's high a few months ago. So I think it is more that the virus is not as bad as we thought a month ago (which seems to be true - projections in the US and Canada have gotten significantly better over the last month). The market does not go up or down when we get bad or good news, it goes up or down when we get news that is better or worse than expected. Also, the S&P 500 is made up of mostly large companies, many of which could benefit long term from the virus. Sure in the short term there will be a revenue hit, but in the long term if their smaller competitors can't survive that hit and they can, they will become more dominant in the future. As far as I know, small business indexes have not recovered much.
- matthewdgreen 7y ago
  The virus's effect on the US economy is significantly worse than it was estimated to be a month ago. Back then the thought was that we'd be fully operational in a few weeks. Now there's increasing evidence that we may be economically degraded for months or years.
MattGaiser 7y ago
Also, massive stimulus both monetary and fiscal.
hn_throwaway_99 7y ago
3 things: 1. People keep saying about the market being up recently, but skip the part about it still being down about 10% since the start of the year. 2. S&P is heavily weighted towards the strongest companies. Amazon, Apple, Facebook, Microsoft and Google account for 20% of S&P market cap. Most of those companies have been helped by the pandemic, or at least not hurt nearly as bad as smaller companies. 3. The market is always very forward looking. It is essentially betting that things are as bad as they'll get. I don't know if I personally necessarily agree, but if you look at countries starting to open up it's not an unreasonable bet.
- steveeq1 7y ago
  Better explanation: the fed is buying securities.
  - lisper 7y ago
    This. What you're seeing is the beginning of a massive currency inflation.
    - ganeshkrishnan 7y ago
      It's very hard to have currency based inflation especially for USD which is in very high demand.
      - lisper 7y ago
        Have you looked at the Fed's balance sheet lately? It is quite literally off the charts. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... It is no harder to inflate the dollar than any other currency. Print enough of them, and the their price will go down. It's no different from any other commodity.
        asah 7y ago
        serious q: down relative to what other currency or asset? gold? bitcoin? real estate?
mk89 7y ago
S&P only has only 500 companies indexed. Lots of SMBs are not even public, and they are simply getting wiped out by the current situation. The 17 min documentary from Netflix might be interesting here: https://www.youtube.com/watch?v=ZCFkWDdmXG8 https://www.youtube.com/watch?v=ZCFkWDdmXG8
ISL 7y ago
It is a bet on the continued support of the market by the Fed. If you're interested in preserving purchasing power 15 years from now, would you rather hold dollars or things today? As a value investor, all of my theses were blown out of the water by the unprecedented Fed intervention. It is an environment in which the fundamentals are uncertain. I'm standing pat and waiting for things to make sense before moving again. The trailing (!) S&P P/E is greater than 20 right now. The Fed is supporting prices above their historical mean/median of 15. It makes zero sense, from a financial standpoint, unless the market is pricing in substantial inflation.
- thedragonline 7y ago
  “Markets can stay irrational longer than you can stay solvent.” J.M. Keynes
- icelancer 7y ago
  >> It is a bet on the continued support of the market by the Fed. Pretty much this. The Fed is backstopping losses. Betting against them post-2008 is a tough position to be in.
- jkoudys 7y ago
  It's studying for the test. It's too common to see a stock index as the stock market as the economy, buy they're all distinct things. Ideally an index _should_ represent that market, but when an economy becomes massively centrally planned by an overreaching fed, it's too easy to prop up those in the index to make the "economy" look strong. Ultimately, purchasing power, people's ability to save, liquidity of assets, etc were pretty bad before this recession. Those are the things we should actually care about - maximizing utility. It's especially galling because the people pushing for these nigh-Stalinist levels of fed intervention and central planning (look how much support oddly favoured industries like manufacturing and coal get) are also posturing as champions of the Free Market. It's like we can't make any progress because nobody in charge is willing to argue in good faith.
- mewpmewp2 7y ago
  1. P/e does not mean much without context. Certainly not what the value of a company should be. 2. Fed helped and did what they are supposed to, which is good for everyone. 3. Market is forward looking and it should be, otherwise it would be dumb. In other words corona will pass, it is not the end of the world and if stocks went too deep, potential earnings from stocks within 5-10 years down the line would be huge, so anyone looking at that timeframe would be buying at discount. High p/e does not mean things are overvalued. It means whoever buys into market estimates strong future potential. Now knowing that you can start to argue whether they are over or under estimating.
AznHisoka 7y ago
The market is a Keynesian contest. Prices are not based on some imaginary formula of GDP or profits. It’s based on sentiment, and thinking what other ppl feel about the market. You wouldn’t bet the economy will be normal by the end of the year but you might bet others think it might.
qqssccfftt 7y ago
The stock market is a reflection of rich people's opinions. It's going up because poor people are being forced back to work.
shockinglytrue 7y ago
Take a look at the Russell 2000 for a wider gauge of where money is flowing. Small businesses are still getting trashed
SpicyLemonZest 7y ago
Remember that in late March and early April, it was completely unknown when the economy would restart, with many people floating the idea of maintaining lockdowns for 18 months. It makes sense that the market is up from that low now that people in many areas are getting back to work.
Ididntdothis 7y ago
It seems to me that the stock market or GDP are very bad measures for the economy. Maybe we should look more at average purchasing power or something like that which actually has real meaning for the regular citizen. The stock market seems to have turned into its own system that’s detached from the experience of most citizens.
- SpicyLemonZest 7y ago
  Metrics like that would be a lot more directly meaningful, but the problem is they're impossible to measure. How would you find out what the average purchasing power is on a day-to-day basis?
  - Ididntdothis 7y ago
    On a day to day basis it would be hard but I think a lot of long term policies could be modified for this goal.
    - SpicyLemonZest 7y ago
      I think they are. Plenty of people talk about the wealth gap and such. There's just no single number to condense the "average people ought to be able to get a lot of stuff" intuition.
VMG 7y ago
A very good explanation of this can be found on https://brrr.money https://brrr.money
minikites 7y ago
>I understand that the economy and the market are different It's not that they're merely different, the modern stock market bears almost no relationship to "the economy". It's HFT algorithms all the way down.
nutjob2 7y ago
It's a bear rally. This is the most optimistic market participants (bulls) buying at low prices and creating momentum that others follow. Waiting for them at higher prices are the pessimists (bears) ready to sell into the rally. Since there really hasn't been a capitulation, where everyone who would ever sell actually sold, it's likely the bears are still in control. I think some people are mistaking the extreme volatility as capitulation.
- sseagull 7y ago
  > Since there really hasn't been a capitulation, where everyone who would ever sell actually sold, it's likely the bears are still in control. I have heard this before, but I am having trouble feeling this. How do you determine capitulation? We had several days where trading was halted for a time due to steep losses, and 3/16 was the second biggest percentage loss in history (for the Dow at least). If that isn't capitulation, what is? Hitting the 20% circuit breaker a few days in a row? Only in 1987 has the market fallen more than 20% in a day. One reason I think the market is rising is because "everyone who would ever sell actually sold". Therefore, only the eternal optimists are left; the pessimists are sitting this one out.
  - quickthrowman 7y ago
    Here’s why I don’t think it was capitulation. Check out google trends for “how to trade stocks” or a variation thereof. There was massive retail interest in buying the big dip, people aren’t interested in buying when capitulation has happened. Perhaps the Fed intervened early enough to prevent a retest of the bottom, but I wouldn’t count on it.
- usaar333 7y ago
  > It's a bear rally. People were saying that when the market jumped back above 2250. It's improbable we'll get that low again.
jariel 7y ago
The market ostensibly has a much longer view of things. The word 'recession' is essentially meaningless without knowing the impetus for it. The 'outsourcing of Jobs to China' is a huge, permanent, secular shift that may affect stocks one way or another, but the 'coronavirus' is something I think business believes we will recover from quickly - for the most part. Tim Cooke told Trump he thinks it will be a 'v-shaped recovery'. But remember that this recession was 'self imposed' in the sense that we ordered businesses to shut down. We can open them again just as quickly. Obviously that won't the entirely the case but I think this is the sentiment. When a new CEO takes over a business, he might 'write off' a bunch of crap. Even though the company loses money that quarter, analysts see it as a 'positive sign' because the company is getting rid of dead weight on their balance sheet. So like a 'one time charge' type thing. I think markets are seeing corona as a 'one time charge'.
- matthewdgreen 7y ago
  How many people do you know who are going to buy the latest iPhone this year or next? I can tell you that among my acquaintances, that number is vastly lower than it was if I asked the same question in February. And that's assuming that everything with the virus goes as well as possible, which it isn't.
  - SpicyLemonZest 7y ago
    The number of people who say they're going to is vastly lower, certainly. But I don't think that people's attitudes during a mandatory stay at home order are reflective of what we'll actually do once it's clear the worst is behind us.
    - matthewdgreen 7y ago
      My point is that many of these people are enduring real financial hardship. Many have already lost jobs or taken major pay cuts. The ones who haven't lost them are afraid of it, and diverting more money into savings and away from discretionary purchases. I assume the people I know are probably more white-collar and in relatively safer jobs than the general population, which (looking only at today's unemployment numbers) is bleeding badly. This isn't about what people want to do. It's about what they will be able to afford to do.
cwhiz 7y ago
The S&P is a reflection of where traders are betting things will go. It is not a reflection of the economic reality at that moment in time. It's also down 10% YTD which is fairly substantial. More important than anything though is that the market right now is absolutely rigged. It's not just irrational and forward looking, it is completely rigged. Central banks all over the world are directly propping up the market up. The market has never been more of a ponzi scheme for the rich than this exact moment in time.
vikramkr 7y ago
This month has been pretty good news for the economy. Vaccines entering trials, states passing the peak of infection, potential positive news with treatments, large amounts of government intervention indicating that the government and the fed are very focused on putting a floor on the economy, bernie sanders suspending his campaign, lowering how much influence he can have on the democratic platform, and so on and so forth. All things the market likes. also, even if there is a decrease in earnings, interest rates are also lower, making stocks more attractive. The market is still down from overall highs. We're not as far down as we were since we don't think it's going to be as bad anymore as we had feared. For 500 large cap stocks listed on US stock exchanges, perhaps about 12% better. Also, in any recession situation, there's very high volatility. The days with highest stock gains tend to occur right before and during recessions. Even if there's a net downward trend, we'd expect things to be swinging all over the place as people keep overcompensating to the daily news
mywittyname 7y ago
Well, that's a 12% increase following a huge drop. So the market is still 15% or so under its February peak. A significant number of S&P 500 investors (roughly 40%) hold their investments in retirement accounts. These people are not going to sell unless forced to because they lost their jobs. If you're looking for a huge drop in the S&P 500, then keep an eye out on laws that allow for penalty-free withdraws from retirement accounts and reports that Americas are taking money out of their retirement accounts to live. Also, there are plenty of people betting on the market going down.
- omgwtfbyobbq 7y ago
  The CARES act waived penalties for up to $100k in withdraws from an eligable retirement account, and lets you pay off the taxes on that ratably over the next 3 years, assuming you don't contribute them back to the plan, which you can do at any time during those 3 years. https://www.fedweek.com/issue-briefs/covid-19-stimulus-bill-retirement-plan-changes-qa/ https://www.fedweek.com/issue-briefs/covid-19-stimulus-bill-...
- antientropic 7y ago
  > So the market is still 15% or so under its February peak. The S&P 500 was up 29% last year. It's now back to the level of October last year - when there was no pandemic or economic crisis. So you could say that the market is remarkably blasé about the current situation.
Causality1 7y ago
The top percent have spent the last fifty years severing worker productivity from worker compensation. In doing so they have made the stock market less and less related to the status of the average American. Only the two wealthiest people I know cared at all when the initial covid panic dropped the market by thirty percent.
banannaise 7y ago
The wealth bubble is still alive and well. Mass layoffs of low-wage workers don't change that very much, and the wealth bubble drives demand for investment vehicles as a class of goods. As long as it keeps inflating, the price of investment vehicles will keep going up, which includes the stock market. And as long as you expect it to keep inflating, you should expect the stock market to keep going up, unless there's a mass exodus into some other type of investment. This may also help explain why many people are terrified of the wealthy getting less wealthy: it'll cause a massive market correction as the demand for investment vehicles decreases to a more reasonable level.
francisofascii 7y ago
Not sure how widespread this is, but my company is doing fine, business is up, yet due to COVID-19, is delaying raises and retirement contributions. Companies have a good excuse for layoffs and for not increasing salary.
robjan 7y ago
The S&P500 is an index of some of the best performing companies in the US. Their performance isn't completely correlated with the broader market. Additionally, this damage to the economy is not permanent, most companies in that index will survive and continue to / return to paying dividends for a long time going into the future.
mikepurvis 7y ago
April 1 was basically the bottom point for the market, so everything's up on rebound since then, but only because it all crashed starting on Feb 20. I don't think any of the market growth from this month reflects actual economic growth, most just optimism or perhaps reined-in pessimism.

adrr 7y ago

Fed is printing money and it needs to go somewhere. They are buying everyone’s distressed assets including dumping money into junk bond etfs.

JKCalhoun 7y ago
Stock market is going up because it's going up. Wait 'til the music starts and there's a scramble for seats.
- pravda 7y ago
  >Wait 'til the music starts and there's a scramble for seats. You meant 'stops'.
  - JKCalhoun 7y ago
    Yes. :-)

seibelj 7y ago

You will get 100 different answers. I like the argument that inflation is actually high, but our outsourcing of goods that make up the consumer inflation algorithm to cheaper countries makes it seem like inflation is low, but goods that can't be outsourced (education, housing, startup unicorns, financial assets like stocks) were eating the excess inflation that had no other place to go. So the real value of stocks is lower when adjusted for true inflation, but everyone claims inflation is minuscule / nonexistent so we can pretend that printing trillions of dollars and handing it to banks is having no effect.

Kye 7y ago

The list of companies on it should give you an idea: https://en.wikipedia.org/wiki/List_of_S%26P_500_companies https://en.wikipedia.org/wiki/List_of_S%26P_500_companies It's mostly companies that do well in any market or have a habit of surviving massive market disruptions. Sort by founded date. Almost all of them are 2000 or older.

jhallenworld 7y ago
To add to this: even within the S&P-500, the better ones seem to do much better than the average ones, so the NASDAQ-100 outperforms the S&P-500. As an investor: Very happy with my "QQQ" (NASDAQ-100 ETF) investment, but my more diverse retirement portfolio is nowhere near as good. I have recently been buying hard hit stocks that I think will survive over the long term: Disney, Marriott.. As an employee: well, the trick is to remain employed.
- basch 7y ago
  QQQ was a good growth bet, but so is pure AMZN. 50% of QQQ is FAAAMIN (Facebook, Amazon, Apple, Alphabet, Microsoft, Intel, Netflix, with Cisco right below but they dont fit the acronym.) https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=1&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=5&absoluteDeviation=35.0&relativeDeviation=30.0&showYield=false&reinvestDividends=true&benchmark=-1&benchmarkSymbol=QQQ&portfolioNames=true&portfolioName1=NASDAQ+100+Leveraged+Parity+Risk+on+Margin&portfolioName2=NASDAQ+100+Leveraged+Parity+Risk+ETFs&portfolioName3=Amazon&symbol1=QQQ&allocation1_1=165&symbol2=TLT&allocation2_1=135&symbol3=CASHX&allocation3_1=-200&symbol4=TQQQ&allocation4_2=55&symbol5=TMF&allocation5_2=45&symbol6=AMZN&allocation6_3=100 https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t... Investing in Amazon is almost as profitable as a 3x leveraged parity risk bet on QQQ. I get what you are saying, "buy when people are fearful", but do you really think it will be more profitable than betting on the top 6 tech stocks?
  - jhallenworld 7y ago

freeone3000 7y ago

Stock market is essentially a sentiment graph. There's no need for it to be linked to any underlying useful metric - it's entirely likely people are investing in stocks simply because all other investments are worse.

harryh 7y ago
This is true in the short run, but not in the long run.
- metalliqaz 7y ago
  I think all you're saying is that eventually sentiment bends toward economic reality.
  - harryh 7y ago
    No, I'm saying that eventually the value of a company is based on actual economic reality and not sentiment. Companies are either profitable or not. They either grow or not. In the end, share prices are based on these things, not just the whims of investors. The stock market is not trading in baseball cards.
- eyeundersand 7y ago
  "In the long run, we are all dead." ~Keynes
  - kyuudou 7y ago
    Keynes, to my knowledge, never had children. The future for one's offspring definitely extends one's field of cares to give, in my opinion.
jariel 7y ago
Obviously sentiment is a factor, but there are a million analysts with very complicated and dense spreadsheets trying to include every single detail to come up with their forecasts. It's nut just instinct.

shakopeeant 7y ago

Once all the small businesses close where do you think all the money is going to go?

bobobob420 7y ago

?? What is the purpose in comparing metrics about our economy recessing based on production of goods vs a market for pieces of company ownership. They are not and never have been the same and there is no law they must follow the same trend

CabSauce 7y ago
Sure, if you ignore that the companies are the ones producing and selling those goods. And that their well-being depends on how many they sell.
- melenaboija 7y ago
  Agree, plus the value of my house and my 401k are highly correlated to the metrics, which means even not being an investor makes me worry about them

hobbescotch 7y ago

AFAIK stocks are up due to the announcements that the lock downs will be ending. However, the surge seems rather short sighted: you can coax stores into reopening, but you can’t force people to go out and shop in them like they used to.

tryptophan 7y ago
I don't think many people, including me, will need much if any coaxing at all.
JKCalhoun 7y ago
Worse, there are a lot more unemployed now who won't be shopping at all.

londons_explore 7y ago

The market is denominated in dollars. If the dollar gets less valuable due to the government printing cash (or buying bonds or issuing loans they are expected to later write off), then things denominated in dollars increase, even if the real value remains unchanged. It's hard to tell if the dollar is weakening, because most other currencies are in the exact same position.

alexpetralia 7y ago
Yes in fact the only thing you wouldn't want to hold is dollars; you'd want to hold things that will earn more dollars in the future (an inflation hedge), such as equities. Then you'd only care about FX rates (to the extent you are purchasing internationally), and I don't see any indication the FX futures market is moving against the dollar.
- silicon2401 7y ago
  if holding onto dollars right now is bad, could you suggest what would be a good place to put cash?
  - alexpetralia 7y ago
    I did use the conditional "would" because I don't think the market is actually expecting inflation, which would erode the value of dollars. Expected inflation can be calculated as the difference between a Treasury and a TIPS of the same tenor - say 5 years. Treasury yields: https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i... TIPS: https://www.wsj.com/market-data/bonds/tips https://www.wsj.com/market-data/bonds/tips So 5 years out, the expected inflation is .37 - (-.418) = .788%; pretty low. In other words, the market doesn't expect all this money printing to translate into general inflation (as measured by the CPI). Personally I would be dollar-cost averaging into equities.
  - elliotec 7y ago
    I don't think they're strictly saying holding dollars is bad right now, just that it could be if inflation became a thing, which is not happening because as said by someone else, almost all other currencies are in the same boat. Plus everything is based on the dollar in the world economy. To answer your question though, if we were in a place where keeping cash was becoming a problem, that's where assets come in like stocks, bonds, real estate.

scottLobster 7y ago

Best explanation I've found: https://www.youtube.com/watch?v=0ECqDaPjjV0 https://www.youtube.com/watch?v=0ECqDaPjjV0 Can't post this enough these days. TLDR is that the stock market is forward looking. It goes up or down based on whether conditions are better or worse than EXPECTED. If reality is in line with expectations then nothing happens. If it's better than expected stocks go up, if it's worse than expected stocks go down. The current shitty economy has already been priced in as far as can be known.

matthewdgreen 7y ago
The last time the S&P price was at today's level, it was October 2019. The market is essentially saying that the forward-looking expectations of the companies in the S&P today are similar to what they were in October 2019. I'm not an expert here -- who knows, maybe they're right -- but I find that judgement very hard to take seriously.
- scottLobster 7y ago
  I agree, but the bet seems to be (in so far as anyone can judge what the market is thinking) that the multi-trillion economic stimulus combined with other credit lines corporations are taking out will do their job on a macroeconomic scale despite anecdotal stories about it being inadequate for individuals. I don't think that's the case, but I don't have any data to say it's unreasonable. Plus there is the expectation that once a vaccine is developed/distributed it'll be the roaring 2020s as everything recovers fully, which I largely agree with. So if you're looking at record profits less than 2 years out, makes for a pretty rosy outlook. That of course is assuming there aren't any particularly economically devastating effects from the oil price wars/demand drop, educational lapses, hurricanes/wild fires on top of corona-virus leading to a renewed spike during evacuations, and any other manner of things that can go wrong. That's where I'm generally making the opposite bet, there's just too many unknowns and plausible disasters that can happen, and if even one of them comes true things get a lot worse quickly. But that's pure speculation/conservatism on my part.
q084yn39cptyth 7y ago

GhostVII 7y ago

The S&P crashed 35% before going up again, and is still significantly lower than it's high a few months ago. So I think it is more that the virus is not as bad as we thought a month ago (which seems to be true - projections in the US and Canada have gotten significantly better over the last month). The market does not go up or down when we get bad or good news, it goes up or down when we get news that is better or worse than expected. Also, the S&P 500 is made up of mostly large companies, many of which could benefit long term from the virus. Sure in the short term there will be a revenue hit, but in the long term if their smaller competitors can't survive that hit and they can, they will become more dominant in the future. As far as I know, small business indexes have not recovered much.

matthewdgreen 7y ago
The virus's effect on the US economy is significantly worse than it was estimated to be a month ago. Back then the thought was that we'd be fully operational in a few weeks. Now there's increasing evidence that we may be economically degraded for months or years.

MattGaiser 7y ago

Also, massive stimulus both monetary and fiscal.

hn_throwaway_99 7y ago

3 things: 1. People keep saying about the market being up recently, but skip the part about it still being down about 10% since the start of the year. 2. S&P is heavily weighted towards the strongest companies. Amazon, Apple, Facebook, Microsoft and Google account for 20% of S&P market cap. Most of those companies have been helped by the pandemic, or at least not hurt nearly as bad as smaller companies. 3. The market is always very forward looking. It is essentially betting that things are as bad as they'll get. I don't know if I personally necessarily agree, but if you look at countries starting to open up it's not an unreasonable bet.

steveeq1 7y ago
Better explanation: the fed is buying securities.
- lisper 7y ago
  This. What you're seeing is the beginning of a massive currency inflation.
  - ganeshkrishnan 7y ago
    It's very hard to have currency based inflation especially for USD which is in very high demand.
    - lisper 7y ago
      Have you looked at the Fed's balance sheet lately? It is quite literally off the charts. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... It is no harder to inflate the dollar than any other currency. Print enough of them, and the their price will go down. It's no different from any other commodity.
      - asah 7y ago
        serious q: down relative to what other currency or asset? gold? bitcoin? real estate?

mk89 7y ago

S&P only has only 500 companies indexed. Lots of SMBs are not even public, and they are simply getting wiped out by the current situation. The 17 min documentary from Netflix might be interesting here: https://www.youtube.com/watch?v=ZCFkWDdmXG8 https://www.youtube.com/watch?v=ZCFkWDdmXG8

ISL 7y ago

It is a bet on the continued support of the market by the Fed. If you're interested in preserving purchasing power 15 years from now, would you rather hold dollars or things today? As a value investor, all of my theses were blown out of the water by the unprecedented Fed intervention. It is an environment in which the fundamentals are uncertain. I'm standing pat and waiting for things to make sense before moving again. The trailing (!) S&P P/E is greater than 20 right now. The Fed is supporting prices above their historical mean/median of 15. It makes zero sense, from a financial standpoint, unless the market is pricing in substantial inflation.

thedragonline 7y ago
“Markets can stay irrational longer than you can stay solvent.” J.M. Keynes
icelancer 7y ago
>> It is a bet on the continued support of the market by the Fed. Pretty much this. The Fed is backstopping losses. Betting against them post-2008 is a tough position to be in.
jkoudys 7y ago
It's studying for the test. It's too common to see a stock index as the stock market as the economy, buy they're all distinct things. Ideally an index _should_ represent that market, but when an economy becomes massively centrally planned by an overreaching fed, it's too easy to prop up those in the index to make the "economy" look strong. Ultimately, purchasing power, people's ability to save, liquidity of assets, etc were pretty bad before this recession. Those are the things we should actually care about - maximizing utility. It's especially galling because the people pushing for these nigh-Stalinist levels of fed intervention and central planning (look how much support oddly favoured industries like manufacturing and coal get) are also posturing as champions of the Free Market. It's like we can't make any progress because nobody in charge is willing to argue in good faith.
mewpmewp2 7y ago
1. P/e does not mean much without context. Certainly not what the value of a company should be. 2. Fed helped and did what they are supposed to, which is good for everyone. 3. Market is forward looking and it should be, otherwise it would be dumb. In other words corona will pass, it is not the end of the world and if stocks went too deep, potential earnings from stocks within 5-10 years down the line would be huge, so anyone looking at that timeframe would be buying at discount. High p/e does not mean things are overvalued. It means whoever buys into market estimates strong future potential. Now knowing that you can start to argue whether they are over or under estimating.

AznHisoka 7y ago

The market is a Keynesian contest. Prices are not based on some imaginary formula of GDP or profits. It’s based on sentiment, and thinking what other ppl feel about the market. You wouldn’t bet the economy will be normal by the end of the year but you might bet others think it might.

qqssccfftt 7y ago

The stock market is a reflection of rich people's opinions. It's going up because poor people are being forced back to work.

shockinglytrue 7y ago

Take a look at the Russell 2000 for a wider gauge of where money is flowing. Small businesses are still getting trashed

SpicyLemonZest 7y ago

Remember that in late March and early April, it was completely unknown when the economy would restart, with many people floating the idea of maintaining lockdowns for 18 months. It makes sense that the market is up from that low now that people in many areas are getting back to work.

Ididntdothis 7y ago

It seems to me that the stock market or GDP are very bad measures for the economy. Maybe we should look more at average purchasing power or something like that which actually has real meaning for the regular citizen. The stock market seems to have turned into its own system that’s detached from the experience of most citizens.

SpicyLemonZest 7y ago
Metrics like that would be a lot more directly meaningful, but the problem is they're impossible to measure. How would you find out what the average purchasing power is on a day-to-day basis?
- Ididntdothis 7y ago
  On a day to day basis it would be hard but I think a lot of long term policies could be modified for this goal.
  - SpicyLemonZest 7y ago
    I think they are. Plenty of people talk about the wealth gap and such. There's just no single number to condense the "average people ought to be able to get a lot of stuff" intuition.

VMG 7y ago

A very good explanation of this can be found on https://brrr.money https://brrr.money

minikites 7y ago

>I understand that the economy and the market are different It's not that they're merely different, the modern stock market bears almost no relationship to "the economy". It's HFT algorithms all the way down.

nutjob2 7y ago

It's a bear rally. This is the most optimistic market participants (bulls) buying at low prices and creating momentum that others follow. Waiting for them at higher prices are the pessimists (bears) ready to sell into the rally. Since there really hasn't been a capitulation, where everyone who would ever sell actually sold, it's likely the bears are still in control. I think some people are mistaking the extreme volatility as capitulation.

sseagull 7y ago
> Since there really hasn't been a capitulation, where everyone who would ever sell actually sold, it's likely the bears are still in control. I have heard this before, but I am having trouble feeling this. How do you determine capitulation? We had several days where trading was halted for a time due to steep losses, and 3/16 was the second biggest percentage loss in history (for the Dow at least). If that isn't capitulation, what is? Hitting the 20% circuit breaker a few days in a row? Only in 1987 has the market fallen more than 20% in a day. One reason I think the market is rising is because "everyone who would ever sell actually sold". Therefore, only the eternal optimists are left; the pessimists are sitting this one out.
- quickthrowman 7y ago
  Here’s why I don’t think it was capitulation. Check out google trends for “how to trade stocks” or a variation thereof. There was massive retail interest in buying the big dip, people aren’t interested in buying when capitulation has happened. Perhaps the Fed intervened early enough to prevent a retest of the bottom, but I wouldn’t count on it.
usaar333 7y ago
> It's a bear rally. People were saying that when the market jumped back above 2250. It's improbable we'll get that low again.

jariel 7y ago

The market ostensibly has a much longer view of things. The word 'recession' is essentially meaningless without knowing the impetus for it. The 'outsourcing of Jobs to China' is a huge, permanent, secular shift that may affect stocks one way or another, but the 'coronavirus' is something I think business believes we will recover from quickly - for the most part. Tim Cooke told Trump he thinks it will be a 'v-shaped recovery'. But remember that this recession was 'self imposed' in the sense that we ordered businesses to shut down. We can open them again just as quickly. Obviously that won't the entirely the case but I think this is the sentiment. When a new CEO takes over a business, he might 'write off' a bunch of crap. Even though the company loses money that quarter, analysts see it as a 'positive sign' because the company is getting rid of dead weight on their balance sheet. So like a 'one time charge' type thing. I think markets are seeing corona as a 'one time charge'.

matthewdgreen 7y ago
How many people do you know who are going to buy the latest iPhone this year or next? I can tell you that among my acquaintances, that number is vastly lower than it was if I asked the same question in February. And that's assuming that everything with the virus goes as well as possible, which it isn't.
- SpicyLemonZest 7y ago
  The number of people who say they're going to is vastly lower, certainly. But I don't think that people's attitudes during a mandatory stay at home order are reflective of what we'll actually do once it's clear the worst is behind us.
  - matthewdgreen 7y ago
    My point is that many of these people are enduring real financial hardship. Many have already lost jobs or taken major pay cuts. The ones who haven't lost them are afraid of it, and diverting more money into savings and away from discretionary purchases. I assume the people I know are probably more white-collar and in relatively safer jobs than the general population, which (looking only at today's unemployment numbers) is bleeding badly. This isn't about what people want to do. It's about what they will be able to afford to do.

cwhiz 7y ago

The S&P is a reflection of where traders are betting things will go. It is not a reflection of the economic reality at that moment in time. It's also down 10% YTD which is fairly substantial. More important than anything though is that the market right now is absolutely rigged. It's not just irrational and forward looking, it is completely rigged. Central banks all over the world are directly propping up the market up. The market has never been more of a ponzi scheme for the rich than this exact moment in time.

vikramkr 7y ago

This month has been pretty good news for the economy. Vaccines entering trials, states passing the peak of infection, potential positive news with treatments, large amounts of government intervention indicating that the government and the fed are very focused on putting a floor on the economy, bernie sanders suspending his campaign, lowering how much influence he can have on the democratic platform, and so on and so forth. All things the market likes. also, even if there is a decrease in earnings, interest rates are also lower, making stocks more attractive. The market is still down from overall highs. We're not as far down as we were since we don't think it's going to be as bad anymore as we had feared. For 500 large cap stocks listed on US stock exchanges, perhaps about 12% better. Also, in any recession situation, there's very high volatility. The days with highest stock gains tend to occur right before and during recessions. Even if there's a net downward trend, we'd expect things to be swinging all over the place as people keep overcompensating to the daily news

mywittyname 7y ago

Well, that's a 12% increase following a huge drop. So the market is still 15% or so under its February peak. A significant number of S&P 500 investors (roughly 40%) hold their investments in retirement accounts. These people are not going to sell unless forced to because they lost their jobs. If you're looking for a huge drop in the S&P 500, then keep an eye out on laws that allow for penalty-free withdraws from retirement accounts and reports that Americas are taking money out of their retirement accounts to live. Also, there are plenty of people betting on the market going down.

omgwtfbyobbq 7y ago
The CARES act waived penalties for up to $100k in withdraws from an eligable retirement account, and lets you pay off the taxes on that ratably over the next 3 years, assuming you don't contribute them back to the plan, which you can do at any time during those 3 years. https://www.fedweek.com/issue-briefs/covid-19-stimulus-bill-retirement-plan-changes-qa/ https://www.fedweek.com/issue-briefs/covid-19-stimulus-bill-...
antientropic 7y ago
> So the market is still 15% or so under its February peak. The S&P 500 was up 29% last year. It's now back to the level of October last year - when there was no pandemic or economic crisis. So you could say that the market is remarkably blasé about the current situation.

Causality1 7y ago

The top percent have spent the last fifty years severing worker productivity from worker compensation. In doing so they have made the stock market less and less related to the status of the average American. Only the two wealthiest people I know cared at all when the initial covid panic dropped the market by thirty percent.

banannaise 7y ago

The wealth bubble is still alive and well. Mass layoffs of low-wage workers don't change that very much, and the wealth bubble drives demand for investment vehicles as a class of goods. As long as it keeps inflating, the price of investment vehicles will keep going up, which includes the stock market. And as long as you expect it to keep inflating, you should expect the stock market to keep going up, unless there's a mass exodus into some other type of investment. This may also help explain why many people are terrified of the wealthy getting less wealthy: it'll cause a massive market correction as the demand for investment vehicles decreases to a more reasonable level.

francisofascii 7y ago

Not sure how widespread this is, but my company is doing fine, business is up, yet due to COVID-19, is delaying raises and retirement contributions. Companies have a good excuse for layoffs and for not increasing salary.

robjan 7y ago

The S&P500 is an index of some of the best performing companies in the US. Their performance isn't completely correlated with the broader market. Additionally, this damage to the economy is not permanent, most companies in that index will survive and continue to / return to paying dividends for a long time going into the future.

mikepurvis 7y ago

April 1 was basically the bottom point for the market, so everything's up on rebound since then, but only because it all crashed starting on Feb 20. I don't think any of the market growth from this month reflects actual economic growth, most just optimism or perhaps reined-in pessimism.