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Can someone help me understand why the broader stock market is actually up compared to six months ago despite all these dire numbers being thrown around? Heck,

Can someone help me understand why the broader stock market is actually up compared to six months ago despite all these dire numbers being thrown around? Heck, Boeing stock is up today! The economy looked very rosy in October 2019 and NASDAQ was near 8300. Now it's 8900 even when millions are unemployed and even millions more furloughed. Should the stock market simply be seen as an isolated, self-contained entity with no real correlation to the broader economy?

nikivi 7y ago
Yes that is the case, some videos that help clarify it: https://www.youtube.com/watch?v=ZCFkWDdmXG8 https://www.youtube.com/watch?v=ZCFkWDdmXG8 https://www.youtube.com/watch?v=0ECqDaPjjV0 https://www.youtube.com/watch?v=0ECqDaPjjV0
jquery 7y ago
Short answer: fantastic ERs in Q3 and Q4. Spy is still 60-70 points down from its woulda-coulda place had covid not happened. Also: trillions in new spending causing asset inflation further lowering SPY below its price it would have if such spending happened without covid. Third reason: SPY yields are still above treasury (risk free) yields... significantly.
samsonradu 7y ago
Mostly because interest rates went from 1.75-2% to 0.25% and the FED balance sheet increased by 6T as we speak.
- cobookman 7y ago
  Fed balance sheet increasing by 6T is huge! Fed is in-directly purchasing stocks, causing a price inflation.
korethr 7y ago
To a degree, yes. The stock market reflects investor sentiment about the viability of of the entities traded. If there's a notion that a company will be worth more in the future and will either pay out a nice dividend or can be later sold at a profit, shares of that company will be in demand and the price will go up. If the company is expected to be losing money and not be worth much or paying out a nice dividend in the future, prices will be going down as everyone tries to sell shares and not be the last one holding something worthless. If a company sheds a bunch of jobs, that can signal a number of things. One of the things it signals is that it has reduced its expenses. Reduced expenses means, all else equal, less chances of it running out of cash or hitting other kind of money problems, and thereby improves its chances of weathering the coming economic storm. If you thought that Boeing shedding a bunch of jobs meant that it had just secured it's ability to continue to exist and be more valuable once the coming recession/depression is over, would you not want to buy shares now to sell at a nice profit later?
- rapsey 7y ago
  > If there's a notion that a company will be worth more in the future and will either pay out a nice dividend or can be later sold at a profit, shares of that company will be in demand and the price will go up. Or if they are sure the FED will keep it from falling
  - korethr 7y ago
    I argue that falls into my point above. If there is a sentiment that by having a thing now, and by either holding it or selling it later, it will make you money, there will be demand for the thing. Whether being able to sell it later for a profit is because of an intrinsic increase in its value or because the Fed propped it up is immaterial. You bought a thing, and later sold it for more money.
fspeech 7y ago
The 30 year TIPS are yielding at -0.22%. In other words people holding ultra safe investment are expected to lose money in real terms year after year for 30 years. BTW the 30 year TIPS gained around 30% in value over the last year.
sandoooo 7y ago
The feds printed trillions of dollars. Much of it ended up on the stock market, especially since there is a dearth of other viable investments and the interest rate is low. Also the developing world is suffering even worse downturns and investors there are moving their money to relatively safer economies. Also some gun-jumping with Gilead's study. And a big short-squeeze since the recession is postponed. I still think a recession is coming. It's just a matter of time now that the lockdowns are getting lifted without any real control over covid. There'll be a rise in new cases, slightly more stringent measures will come and go, other countries with proper recoveries will keep the US travel bans in place, etc. The market can't defy gravity forever. It can, of course, defy gravity for long enough to lose you your shirt.
- chrisseaton 7y ago
  > The feds printed trillions of dollars. You're repeating a debunked myth https://www.stlouisfed.org/open-vault/2017/november/does-federal-reserve-print-money https://www.stlouisfed.org/open-vault/2017/november/does-fed...
  - sandoooo 7y ago
    The article doesn't say what you think it says. >One of the most common questions about the Federal Reserve is this: Does the Fed print money? >There are really two ways to address this question. In terms of the actual, physical printing, no, the Fed doesn’t actually print or produce money in any form. Coins come from the U.S. Mint, and paper currency comes from the U.S. Treasury’s Bureau of Engraving and Printing. The Fed distributes currency after it’s printed. >However, what many questioners might really be asking is whether the Fed has the ability to control how much money is in our economy. That’s a different story. >The Fed adds to (or subtracts from) the amount of money in the economy by buying (or selling) U.S. Treasury securities and other financial instruments. This is referred to as “open market operations,” since these transactions take place in the open market. (The Fed isn’t allowed to buy securities directly from the U.S. Treasury.) >The Fed pays for those securities by crediting funds to the reserves that banks are required to hold, either cash in their vaults or deposits at a Reserve bank. >“So, in that sense, we can think of ‘printing money’ as adding reserves to the banking system,” said David Wheelock, vice president and deputy director of research.
mrtksn 7y ago
I'm trying to understand what the company stock performance has to do with the company performance. Sure, if the company is mismanaged and fails to operate the stock might become worthless and if the company is very successful and has piles of cash can buy stocks back at higher prices but besides that I am not under the impression that people are putting their money in stocks for the dividends. Yes, if everybody thinks that good performance should increase the stock prices then the performance matters but this is a self-fulfilling prophecy. Celebrity CEO smoking weed and being cool should be able to beat any technical indicator IMHO. A large number of people might simply act irrationally just to be a part of a movement. Maybe the best thing Boeing can do for its the stock price is to install a really cool CEO who is good with memes, close down the factories and concentrate on the brand. Is there anything to compel them to produce planes?
- s1artibartfast 7y ago
  > I am not under the impression that people are putting their money in stocks for the dividends. The potential of future dividends, buybacks, or acquisitions differentiate stocks from sportsbetting > self-fulfilling prophecy. Celebrity CEO... The exceptions prove the rule. You can and do get irrational stock prices. Not everyone can follow the musk model, and if they did, investors would be back to using the fundamentals to differentiate them. If Boeing really thought they could follow the musk model, they would, but I personally don’t think they are in a good position to do so. Sometimes you can fake it until you make it, but most often you won’t.
  - mrtksn 7y ago
    Yes, Musk is the example here but I don’t think that it’s that hard to implement this, simply because there are many many cults out there that function in similar manner. Probably there is a formula for that.
    - s1artibartfast 7y ago
      Please don’t take this the wrong way, but I’m not sure what exactly your claim here is. Are you saying that nearly every company on the exchange is missing out on tens of billions of dollars by not implementing this formula you assume to exist?
bluGill 7y ago
The stock market is always looking forward. Things will be bad for a few months yet, but in 10 years this will be a memory. The market expects things to just fine again in 10 years and is willing to accept a few bad times on the way.
- vkou 7y ago
  Which fails to explain why the stock market was cratering in March. The reason that it's up now is because the Fed printed 6 trillion dollars, and is spending it at the financial markets.
  - Infinitesimus 7y ago
    It dropped in March because of fear and uncertainty. We didn't guess how bad the impact of the virus would be and no one knew how much ink the Fed's printer has (turns out it's infinite!)
    - vkou 7y ago
      The impact of the virus has turned out to be... Exactly in line with what we were observing in China during February. Was the market in March also expecting a 20% death rate on top of that?
      - bluGill 7y ago
        The market tends to overreact. Remember it is a bunch of humans, there is no magical god behind it.
  - afarrell 7y ago
    (speculative opinion here) So...I've started to view the economy as a distributed voting algorithm where we decide what companies should exist and where people should spend their attention. If the fed is adding 6 trillion votes to the financial markets then won't that mean that we focus more of our attention on solving the problems of companies that either: A) Are large enough to overcome the regulator hurdles to participate in financial markets. B) Are explosively-growing enough to get VC funding. C) Are underpriced enough to get private equity funding. As a software engineer who's mostly worked for companies in category B, I guess I'm fine with this attention. But given what the pandemic is doing to small business, shouldn't society be preparing to devote more of its attention to companies solving problems like "I want some chicken & rice in Roxbury."?
yread 7y ago
I'm no expert but stocks usually go up when companies announce 10s thousands of job cuts
hyko 7y ago
Stimulus money flowing into assets and supporting their prices. i.e. The Cantillon Effect.
amiga_500 7y ago
Because money is going to be worth significantly less than it is now. So in real terms it dropped.
ddebernardy 7y ago
> Can someone help me understand why the broader stock market is actually up compared to six months ago despite all these dire numbers being thrown around? Heck, Boeing stock is up today! Dumb money is pouring in, and institutional investors are riding the dead cat bounce. For Boeing specifically, it's because they fired thousands of workers to cut their costs. And to their credit, they're actually expecting a long slump. Many businesses are still deluding themselves.
lend000 7y ago
Amazon is propping up the major stock market indices [0]. While Amazon's services and hiring are playing a role in stabilizing the economy, it can't do it alone and its outsized impact on stock indices is misleading as a general economic health indicator. [0] https://www.tradingview.com/chart/SPX/JNwcmXqj-S-P-with-and-without-AMAZON-What-do-you-make-of-this/ https://www.tradingview.com/chart/SPX/JNwcmXqj-S-P-with-and-...
spicymaki 7y ago
I heard an idea from "Economics Explained" that since the Fed is pumping money into the economy it is inflating stock prices, even though the CPI has gone down slightly. The intrinsic value of AAPL ~ $288 now is not the same as AAPL ~ $288 late December 2019.
airstrike 7y ago
Because the stock market going up or down is a proxy for changes in expectations about the future. If people are slightly less pessimistic than before, it will go up. Boeing being in dire straits is old news – it's all priced in, pretty much. Besides, there are lots of news out there, including the fact that we're seeing stimulus that dwarfs even what was done during the '08-'09 crisis. Case in point, the top story at the WSJ website now is: https://www.wsj.com/articles/federal-reserve-interest-rates-decision-april-2020-11588111763?mod=hp_lead_pos1 https://www.wsj.com/articles/federal-reserve-interest-rates-... Think of stock market swings as the second derivative of the actual information you're seeing.
- X6S1x6Okd1st 7y ago
  Six months is before the pandemic really set in though. I really don't think that stock prices at the end of October had the pandemic priced in.
  - airstrike 7y ago
    Boeing has been in a bad spot since the MAX disasters. It was probably one of the first stocks to dump once COVID-19 hit, so it's not like a lot of people are being caught off-guard by this new development.
- cik2e 7y ago
  That’s assuming perfect information. Behavioral economics begs to differ on that being even close to reality.
  - airstrike 7y ago
    Not an economist, but I don't see how, given that I'm specifically mentioning people's expectations about the future, not just cold hard facts. Those expectations may or may not be rational, but they're still driven (in part) by news.
  - nickff 7y ago
    Almost nobody assumes absolutely perfect information; even Adam Smith was relying on approximations of actual behaviour. Most economics relies on the assumption that information is close enough to perfect that we can just assume away any difference. Behavioural economics has proven unreliable, with results that are (at least) difficult to replicate, and non-predictive.
devenson 7y ago
People are preferring stocks over dollars because rising federal debt portends rising inflation.
beefield 7y ago
There exists a horrible misunderstanding on the efficient market hypothesis. Markets are difficult to beat not because they reflect all available information, but because they do not, and nobody knows by how much they misreflect the information tomorrow. (This is my personal pet theory)
soygul 7y ago
Stock market is a predictive pricing mechanism. It prices assets based on future expected returns. News about the economy is history and hence it is already priced in.
yumraj 7y ago
I also struggle with this, and this is my theory: In 2008 every day brought in bad news, with more and more banks failing, home being foreclosed, bad financial numbers, Congress trying to bailout .... which led to overall bad sentiment and the decline in stock market. Right now, if I look at the new cycle what do I see: A city wants to open up, layoffs, a state wants to open up, stimulus money, people on the beach, layoffs, more stimulus money, GDP down, virus in works, 20% in NY may have been infected, Remdesivir is working.... So, is it a bad news or optimistic news? It's all mixed in. No one knows how to process medical side and financial side together. On top of that there is a lot of liquidity in the market. So, what happens, it ends up in the stock market thus inflating it. I think there would be a massive whiplash once we start seeing higher unemployment numbers and the real impact of March-? shutdown and see a massive drop in the stock market. But who knows??
- zerkten 7y ago
  >> a massive whiplash once we start seeing higher unemployment numbers My bet is on this. A lot of people in the market and on main street are assuming that we'll be able to get up and running again quickly when we have better treatments and later a vaccine, i.e. there is nothing structural weighing down a return. I'm not so optimistic because tourism and travel are huge markets with impacts on other markets. I also don't believe that the situation from 2018 until the pandemic was sustainable. Problems existed then, but were not exposed. There are leadership failures in different places, but it's hard to account for all of those across government and business right now.
  - yumraj 7y ago
    > situation from 2018 until the pandemic was sustainable Exactly. Many, most ?, were expecting a correction/recession even without any pandemic in 2019/2020. Now this massive shock is bound to shake everything up. I'm not going to use the D word but recession is a given.
toss1 7y ago
"The market can stay irrational longer than you can stay solvent." - attrib. J.M. Keynes Some of it is the common adage "Don't fight the Fed(eral Reserve Bank)." They are dumping what in any other time would be insane amounts of cash into the markets. Then, there's hopium. Everyone hoping that there will be some quick way out. This goes beyond just a few stocks like Amazon overweighting the averages - there are broad run-ups. this does often happen in bear markets, where there's a first initial fall, then a rise, then the real crash to the ultimate lows. We certainly have not yet seen the capitulation, evident of bear market bottoms, where the last holdouts finally throw in the towel and sell. My thought experiment is to consider what would happen if it were magically fixed at midnight tonight. Six weeks ago, it probably would have returned to relatively solid footing. Now, I think significant permanent damage has been done. Six more weeks, likely more damage. I'd love to see any other thoughts on how this thought experiment might play out
scottLobster 7y ago
Pretty much: https://www.youtube.com/watch?v=0ECqDaPjjV0 https://www.youtube.com/watch?v=0ECqDaPjjV0 On a global scale GDP is actually negatively correlated with stock market performance.
baron_harkonnen 7y ago
I think the truth is no one really knows what's happening, and won't until whatever "reality" is anymore finally hits. Don't buy into the HN "it's already priced in!" rants. I have a fair number of acquaintances in finance and plenty of 30 year industry vets, who are they type that aren't surprised or concerned about hardly anything, are absolutely scratching their heads right now. The obvious problem right now is, supposing you're a 100% sure that things are going to get worse, where do you put your investments if you're a large firm? Sure if you're a HNer go ahead an buy some put options. Bond rates are extremely low right now so that wouldn't be a wise investment especially if stocks, rational or not, keep going up. Even though everyone knows this will be bad, nobody knows how bad or exactly what it will look like. So it's very hard to price that. It's almost like we were in a terrible accident, and are still walking around like normal because of shock despite missing a limb.
bransonf 7y ago
There was a great Twitter thread[0] on this the other day. To summarize, value has shifted from the energy sector to online services and technology dramatically. [0]https://twitter.com/calvinfo/status/1254635755671969793 https://twitter.com/calvinfo/status/1254635755671969793

nikivi 7y ago

Yes that is the case, some videos that help clarify it: https://www.youtube.com/watch?v=ZCFkWDdmXG8 https://www.youtube.com/watch?v=ZCFkWDdmXG8 https://www.youtube.com/watch?v=0ECqDaPjjV0 https://www.youtube.com/watch?v=0ECqDaPjjV0

jquery 7y ago

Short answer: fantastic ERs in Q3 and Q4. Spy is still 60-70 points down from its woulda-coulda place had covid not happened. Also: trillions in new spending causing asset inflation further lowering SPY below its price it would have if such spending happened without covid. Third reason: SPY yields are still above treasury (risk free) yields... significantly.

samsonradu 7y ago

Mostly because interest rates went from 1.75-2% to 0.25% and the FED balance sheet increased by 6T as we speak.

cobookman 7y ago
Fed balance sheet increasing by 6T is huge! Fed is in-directly purchasing stocks, causing a price inflation.

korethr 7y ago

To a degree, yes. The stock market reflects investor sentiment about the viability of of the entities traded. If there's a notion that a company will be worth more in the future and will either pay out a nice dividend or can be later sold at a profit, shares of that company will be in demand and the price will go up. If the company is expected to be losing money and not be worth much or paying out a nice dividend in the future, prices will be going down as everyone tries to sell shares and not be the last one holding something worthless. If a company sheds a bunch of jobs, that can signal a number of things. One of the things it signals is that it has reduced its expenses. Reduced expenses means, all else equal, less chances of it running out of cash or hitting other kind of money problems, and thereby improves its chances of weathering the coming economic storm. If you thought that Boeing shedding a bunch of jobs meant that it had just secured it's ability to continue to exist and be more valuable once the coming recession/depression is over, would you not want to buy shares now to sell at a nice profit later?

rapsey 7y ago
> If there's a notion that a company will be worth more in the future and will either pay out a nice dividend or can be later sold at a profit, shares of that company will be in demand and the price will go up. Or if they are sure the FED will keep it from falling
- korethr 7y ago
  I argue that falls into my point above. If there is a sentiment that by having a thing now, and by either holding it or selling it later, it will make you money, there will be demand for the thing. Whether being able to sell it later for a profit is because of an intrinsic increase in its value or because the Fed propped it up is immaterial. You bought a thing, and later sold it for more money.

fspeech 7y ago

The 30 year TIPS are yielding at -0.22%. In other words people holding ultra safe investment are expected to lose money in real terms year after year for 30 years. BTW the 30 year TIPS gained around 30% in value over the last year.

sandoooo 7y ago

The feds printed trillions of dollars. Much of it ended up on the stock market, especially since there is a dearth of other viable investments and the interest rate is low. Also the developing world is suffering even worse downturns and investors there are moving their money to relatively safer economies. Also some gun-jumping with Gilead's study. And a big short-squeeze since the recession is postponed. I still think a recession is coming. It's just a matter of time now that the lockdowns are getting lifted without any real control over covid. There'll be a rise in new cases, slightly more stringent measures will come and go, other countries with proper recoveries will keep the US travel bans in place, etc. The market can't defy gravity forever. It can, of course, defy gravity for long enough to lose you your shirt.

chrisseaton 7y ago
> The feds printed trillions of dollars. You're repeating a debunked myth https://www.stlouisfed.org/open-vault/2017/november/does-federal-reserve-print-money https://www.stlouisfed.org/open-vault/2017/november/does-fed...
- sandoooo 7y ago
  The article doesn't say what you think it says. >One of the most common questions about the Federal Reserve is this: Does the Fed print money? >There are really two ways to address this question. In terms of the actual, physical printing, no, the Fed doesn’t actually print or produce money in any form. Coins come from the U.S. Mint, and paper currency comes from the U.S. Treasury’s Bureau of Engraving and Printing. The Fed distributes currency after it’s printed. >However, what many questioners might really be asking is whether the Fed has the ability to control how much money is in our economy. That’s a different story. >The Fed adds to (or subtracts from) the amount of money in the economy by buying (or selling) U.S. Treasury securities and other financial instruments. This is referred to as “open market operations,” since these transactions take place in the open market. (The Fed isn’t allowed to buy securities directly from the U.S. Treasury.) >The Fed pays for those securities by crediting funds to the reserves that banks are required to hold, either cash in their vaults or deposits at a Reserve bank. >“So, in that sense, we can think of ‘printing money’ as adding reserves to the banking system,” said David Wheelock, vice president and deputy director of research.

mrtksn 7y ago

I'm trying to understand what the company stock performance has to do with the company performance. Sure, if the company is mismanaged and fails to operate the stock might become worthless and if the company is very successful and has piles of cash can buy stocks back at higher prices but besides that I am not under the impression that people are putting their money in stocks for the dividends. Yes, if everybody thinks that good performance should increase the stock prices then the performance matters but this is a self-fulfilling prophecy. Celebrity CEO smoking weed and being cool should be able to beat any technical indicator IMHO. A large number of people might simply act irrationally just to be a part of a movement. Maybe the best thing Boeing can do for its the stock price is to install a really cool CEO who is good with memes, close down the factories and concentrate on the brand. Is there anything to compel them to produce planes?

s1artibartfast 7y ago
> I am not under the impression that people are putting their money in stocks for the dividends. The potential of future dividends, buybacks, or acquisitions differentiate stocks from sportsbetting > self-fulfilling prophecy. Celebrity CEO... The exceptions prove the rule. You can and do get irrational stock prices. Not everyone can follow the musk model, and if they did, investors would be back to using the fundamentals to differentiate them. If Boeing really thought they could follow the musk model, they would, but I personally don’t think they are in a good position to do so. Sometimes you can fake it until you make it, but most often you won’t.
- mrtksn 7y ago
  Yes, Musk is the example here but I don’t think that it’s that hard to implement this, simply because there are many many cults out there that function in similar manner. Probably there is a formula for that.
  - s1artibartfast 7y ago
    Please don’t take this the wrong way, but I’m not sure what exactly your claim here is. Are you saying that nearly every company on the exchange is missing out on tens of billions of dollars by not implementing this formula you assume to exist?

bluGill 7y ago

The stock market is always looking forward. Things will be bad for a few months yet, but in 10 years this will be a memory. The market expects things to just fine again in 10 years and is willing to accept a few bad times on the way.

vkou 7y ago
Which fails to explain why the stock market was cratering in March. The reason that it's up now is because the Fed printed 6 trillion dollars, and is spending it at the financial markets.
- Infinitesimus 7y ago
  It dropped in March because of fear and uncertainty. We didn't guess how bad the impact of the virus would be and no one knew how much ink the Fed's printer has (turns out it's infinite!)
  - vkou 7y ago
    The impact of the virus has turned out to be... Exactly in line with what we were observing in China during February. Was the market in March also expecting a 20% death rate on top of that?
    - bluGill 7y ago
      The market tends to overreact. Remember it is a bunch of humans, there is no magical god behind it.
- afarrell 7y ago
  (speculative opinion here) So...I've started to view the economy as a distributed voting algorithm where we decide what companies should exist and where people should spend their attention. If the fed is adding 6 trillion votes to the financial markets then won't that mean that we focus more of our attention on solving the problems of companies that either: A) Are large enough to overcome the regulator hurdles to participate in financial markets. B) Are explosively-growing enough to get VC funding. C) Are underpriced enough to get private equity funding. As a software engineer who's mostly worked for companies in category B, I guess I'm fine with this attention. But given what the pandemic is doing to small business, shouldn't society be preparing to devote more of its attention to companies solving problems like "I want some chicken & rice in Roxbury."?

yread 7y ago

I'm no expert but stocks usually go up when companies announce 10s thousands of job cuts

hyko 7y ago

Stimulus money flowing into assets and supporting their prices. i.e. The Cantillon Effect.

amiga_500 7y ago

Because money is going to be worth significantly less than it is now. So in real terms it dropped.

ddebernardy 7y ago

> Can someone help me understand why the broader stock market is actually up compared to six months ago despite all these dire numbers being thrown around? Heck, Boeing stock is up today! Dumb money is pouring in, and institutional investors are riding the dead cat bounce. For Boeing specifically, it's because they fired thousands of workers to cut their costs. And to their credit, they're actually expecting a long slump. Many businesses are still deluding themselves.

lend000 7y ago

Amazon is propping up the major stock market indices [0]. While Amazon's services and hiring are playing a role in stabilizing the economy, it can't do it alone and its outsized impact on stock indices is misleading as a general economic health indicator. [0] https://www.tradingview.com/chart/SPX/JNwcmXqj-S-P-with-and-without-AMAZON-What-do-you-make-of-this/ https://www.tradingview.com/chart/SPX/JNwcmXqj-S-P-with-and-...

spicymaki 7y ago

I heard an idea from "Economics Explained" that since the Fed is pumping money into the economy it is inflating stock prices, even though the CPI has gone down slightly. The intrinsic value of AAPL ~ $288 now is not the same as AAPL ~ $288 late December 2019.

airstrike 7y ago

Because the stock market going up or down is a proxy for changes in expectations about the future. If people are slightly less pessimistic than before, it will go up. Boeing being in dire straits is old news – it's all priced in, pretty much. Besides, there are lots of news out there, including the fact that we're seeing stimulus that dwarfs even what was done during the '08-'09 crisis. Case in point, the top story at the WSJ website now is: https://www.wsj.com/articles/federal-reserve-interest-rates-decision-april-2020-11588111763?mod=hp_lead_pos1 https://www.wsj.com/articles/federal-reserve-interest-rates-... Think of stock market swings as the second derivative of the actual information you're seeing.

X6S1x6Okd1st 7y ago
Six months is before the pandemic really set in though. I really don't think that stock prices at the end of October had the pandemic priced in.
- airstrike 7y ago
  Boeing has been in a bad spot since the MAX disasters. It was probably one of the first stocks to dump once COVID-19 hit, so it's not like a lot of people are being caught off-guard by this new development.
cik2e 7y ago
That’s assuming perfect information. Behavioral economics begs to differ on that being even close to reality.
- airstrike 7y ago
  Not an economist, but I don't see how, given that I'm specifically mentioning people's expectations about the future, not just cold hard facts. Those expectations may or may not be rational, but they're still driven (in part) by news.
- nickff 7y ago
  Almost nobody assumes absolutely perfect information; even Adam Smith was relying on approximations of actual behaviour. Most economics relies on the assumption that information is close enough to perfect that we can just assume away any difference. Behavioural economics has proven unreliable, with results that are (at least) difficult to replicate, and non-predictive.

devenson 7y ago

People are preferring stocks over dollars because rising federal debt portends rising inflation.

beefield 7y ago

There exists a horrible misunderstanding on the efficient market hypothesis. Markets are difficult to beat not because they reflect all available information, but because they do not, and nobody knows by how much they misreflect the information tomorrow. (This is my personal pet theory)

soygul 7y ago

Stock market is a predictive pricing mechanism. It prices assets based on future expected returns. News about the economy is history and hence it is already priced in.

yumraj 7y ago

I also struggle with this, and this is my theory: In 2008 every day brought in bad news, with more and more banks failing, home being foreclosed, bad financial numbers, Congress trying to bailout .... which led to overall bad sentiment and the decline in stock market. Right now, if I look at the new cycle what do I see: A city wants to open up, layoffs, a state wants to open up, stimulus money, people on the beach, layoffs, more stimulus money, GDP down, virus in works, 20% in NY may have been infected, Remdesivir is working.... So, is it a bad news or optimistic news? It's all mixed in. No one knows how to process medical side and financial side together. On top of that there is a lot of liquidity in the market. So, what happens, it ends up in the stock market thus inflating it. I think there would be a massive whiplash once we start seeing higher unemployment numbers and the real impact of March-? shutdown and see a massive drop in the stock market. But who knows??

zerkten 7y ago
>> a massive whiplash once we start seeing higher unemployment numbers My bet is on this. A lot of people in the market and on main street are assuming that we'll be able to get up and running again quickly when we have better treatments and later a vaccine, i.e. there is nothing structural weighing down a return. I'm not so optimistic because tourism and travel are huge markets with impacts on other markets. I also don't believe that the situation from 2018 until the pandemic was sustainable. Problems existed then, but were not exposed. There are leadership failures in different places, but it's hard to account for all of those across government and business right now.
- yumraj 7y ago
  > situation from 2018 until the pandemic was sustainable Exactly. Many, most ?, were expecting a correction/recession even without any pandemic in 2019/2020. Now this massive shock is bound to shake everything up. I'm not going to use the D word but recession is a given.

toss1 7y ago

"The market can stay irrational longer than you can stay solvent." - attrib. J.M. Keynes Some of it is the common adage "Don't fight the Fed(eral Reserve Bank)." They are dumping what in any other time would be insane amounts of cash into the markets. Then, there's hopium. Everyone hoping that there will be some quick way out. This goes beyond just a few stocks like Amazon overweighting the averages - there are broad run-ups. this does often happen in bear markets, where there's a first initial fall, then a rise, then the real crash to the ultimate lows. We certainly have not yet seen the capitulation, evident of bear market bottoms, where the last holdouts finally throw in the towel and sell. My thought experiment is to consider what would happen if it were magically fixed at midnight tonight. Six weeks ago, it probably would have returned to relatively solid footing. Now, I think significant permanent damage has been done. Six more weeks, likely more damage. I'd love to see any other thoughts on how this thought experiment might play out

scottLobster 7y ago

Pretty much: https://www.youtube.com/watch?v=0ECqDaPjjV0 https://www.youtube.com/watch?v=0ECqDaPjjV0 On a global scale GDP is actually negatively correlated with stock market performance.

baron_harkonnen 7y ago

I think the truth is no one really knows what's happening, and won't until whatever "reality" is anymore finally hits. Don't buy into the HN "it's already priced in!" rants. I have a fair number of acquaintances in finance and plenty of 30 year industry vets, who are they type that aren't surprised or concerned about hardly anything, are absolutely scratching their heads right now. The obvious problem right now is, supposing you're a 100% sure that things are going to get worse, where do you put your investments if you're a large firm? Sure if you're a HNer go ahead an buy some put options. Bond rates are extremely low right now so that wouldn't be a wise investment especially if stocks, rational or not, keep going up. Even though everyone knows this will be bad, nobody knows how bad or exactly what it will look like. So it's very hard to price that. It's almost like we were in a terrible accident, and are still walking around like normal because of shock despite missing a limb.

bransonf 7y ago

There was a great Twitter thread[0] on this the other day. To summarize, value has shifted from the energy sector to online services and technology dramatically. [0]https://twitter.com/calvinfo/status/1254635755671969793 https://twitter.com/calvinfo/status/1254635755671969793