5 ms·

Stock markets are also priced according to _expectations_ about the future, rather than the events at this very moment. So if a recovery is expected, the market

by m3nu 6y ago

Stock markets are also priced according to _expectations_ about the future, rather than the events at this very moment. So if a recovery is expected, the market will reflect it sooner than the economy at large.

martinko 6y ago
You're basically saying that whatever the price is, the market is right. How do you square that with the elephant in the room, the FED's market interventions? Does it have an effect on prices? If it does, then the prices are obviously not driven only by expectations. If not, where does the excess liquidity on the other side of the FED's treasuries and bond trades go?
- aeternum 6y ago
  >You're basically saying that whatever the price is, the market is right. Op said that the markets are priced based partly on expectations of the future, I don't see any claim that those expectations are necessarily correct. In terms of the Fed's effect: Both the Fed's immediate actions as well as expectations of future Fed actions have an effect on prices.
- marvel_boy 6y ago
  I dont think he is assuming the market is right or wrong. The market is expected be great for some tech companies, and very bad for travel related business. No moral judgements, only expectations of future performance
- chongli 6y ago
  The market is wrong all the time. People make money by beating the market. It’s just not easy to predict who will beat the market ahead of time. Just like how it’s not easy to predict who will win the lottery. It’s a pretty safe bet that someone will, though, at least some of the time.
  - ozim 6y ago
    No, people are not making money beating the market. See long term bets about ETF vs managed money managers. If you beat the market today like "you bough when it was 20% down" then "sell now because i went back to what it was" you have to buy again to stay in the market or never sell. Otherwise market will go up and you will stay with "one time shot" that in 5 or 10 years will be worth nothing. Time in the market makes money, so market is right.
- smcphile 6y ago
  > You're basically saying that whatever the price is, the market is right. No, the efficient market hypothesis states that asset prices reflect all current available information. OP is not defending that hypothesis in their message, they’re just saying stock prices reflect expectations about the future, a much weaker assertion. Those expectations might turn out to be wrong, for various reasons, but they’re nevertheless what motivated people to invest in stocks rather than doing something else with their money.
  - grumple 6y ago
    > the efficient market hypothesis states that asset prices reflect all current available information. Obviously interpretations of that information could differ... and some will be right, and some will be wrong.
    - smcphile 6y ago
      Sure, individual evaluations of all currently available information can and do differ. The efficient market hypothesis is about the sum total of all those individual evaluations adding up to a rational evaluation as reflected in asset prices. Not everyone believes in the efficient market hypothesis, Warren Buffet being a famous example of someone who does not.
      - camelite 6y ago
        Of course he doesn't. His existence invalidates it.
- rich_sasha 6y ago
  Markets may well be, often are, irrational. But it's not crazy to expect the markets to rebound. People are becoming unemployed for a _transient_ reason of lockdown etc., economic recession is due to the pause button being pressed, and not a fundamental breakdown in economic activity. Of course prolonged lockdown etc. could make things worse still. But the main pain we see is definitely expected to me short-medium term. As for markets being irrational - actually, I think they are more often rational than not. They are mostly bashed for being irrational in hindsight, which, well, is not really fair. Also, it is just often rational, but with respect to different criteria than what is widely assumed.
  - bitcoinbutter 6y ago
    The market seems to be pricing in the best case scenario here. They're saying that almost everything is back to normal by Q3. This would be 4 really bad months (March-June) total. The reality is that the future is very uncertain at this point. The market drastically underestimated the virus in early February, and it appears the same phenomenon is happening now.
    - lonelappde 6y ago
      Covid 19 will eventually (a year or 2) go through the whole population and kill a lot of people, especially pensioners. Then it will be a background level killer like flu and cars. This is bad for many humans and people who love them but it's not bad for the economy.
      - saati 6y ago
        Just the real estate price collapse that will follow the deaths is very bad for the economy.
- pfortuny 6y ago
  There is little meaning in the market “being right”. There is no “right” price for anything. But it looks like the economy has already crashed and there is not so much worse to go.
ur-whale 6y ago
> Stock markets are also priced according to _expectations That's the theory. Markets are in practice: . far more irrational than theory admits to, mostly because theory doesn't model feedback loops properly . almost always subject to manipulation
- pwagland 6y ago
  You are basically saying the same thing. Behavioural economics, in particular, says that expectations are not always rational. To be more precise, just because people expect that things will improve doesn't mean that they will. However expectations do drive behaviour, whether those expectations are rational or not.
chiefalchemist 6y ago
It's also a function of other possible investments and that risk. Rational / irrational has to be considered in the broader context. It's about risk and return. For some, despite the present situation, the stock market might be the best choice.
amf12 6y ago
> Stock markets are also priced according to _expectations_ about the future, That does not mean they are the right expectations and market is correct. Market could be over optimistic in this situation or just right. I know you don't mean to suggest that. But I just wanted to point that out. I feel "priced in" is the stupidest answer to questions wondering "why is this happening". And I know you aren't saying this either.

by m3nu 6y ago

martinko 6y ago

You're basically saying that whatever the price is, the market is right. How do you square that with the elephant in the room, the FED's market interventions? Does it have an effect on prices? If it does, then the prices are obviously not driven only by expectations. If not, where does the excess liquidity on the other side of the FED's treasuries and bond trades go?

aeternum 6y ago
>You're basically saying that whatever the price is, the market is right. Op said that the markets are priced based partly on expectations of the future, I don't see any claim that those expectations are necessarily correct. In terms of the Fed's effect: Both the Fed's immediate actions as well as expectations of future Fed actions have an effect on prices.
marvel_boy 6y ago
I dont think he is assuming the market is right or wrong. The market is expected be great for some tech companies, and very bad for travel related business. No moral judgements, only expectations of future performance
chongli 6y ago
The market is wrong all the time. People make money by beating the market. It’s just not easy to predict who will beat the market ahead of time. Just like how it’s not easy to predict who will win the lottery. It’s a pretty safe bet that someone will, though, at least some of the time.
- ozim 6y ago
  No, people are not making money beating the market. See long term bets about ETF vs managed money managers. If you beat the market today like "you bough when it was 20% down" then "sell now because i went back to what it was" you have to buy again to stay in the market or never sell. Otherwise market will go up and you will stay with "one time shot" that in 5 or 10 years will be worth nothing. Time in the market makes money, so market is right.
smcphile 6y ago
> You're basically saying that whatever the price is, the market is right. No, the efficient market hypothesis states that asset prices reflect all current available information. OP is not defending that hypothesis in their message, they’re just saying stock prices reflect expectations about the future, a much weaker assertion. Those expectations might turn out to be wrong, for various reasons, but they’re nevertheless what motivated people to invest in stocks rather than doing something else with their money.
- grumple 6y ago
  > the efficient market hypothesis states that asset prices reflect all current available information. Obviously interpretations of that information could differ... and some will be right, and some will be wrong.
  - smcphile 6y ago
    Sure, individual evaluations of all currently available information can and do differ. The efficient market hypothesis is about the sum total of all those individual evaluations adding up to a rational evaluation as reflected in asset prices. Not everyone believes in the efficient market hypothesis, Warren Buffet being a famous example of someone who does not.
    - camelite 6y ago
      Of course he doesn't. His existence invalidates it.
rich_sasha 6y ago
Markets may well be, often are, irrational. But it's not crazy to expect the markets to rebound. People are becoming unemployed for a _transient_ reason of lockdown etc., economic recession is due to the pause button being pressed, and not a fundamental breakdown in economic activity. Of course prolonged lockdown etc. could make things worse still. But the main pain we see is definitely expected to me short-medium term. As for markets being irrational - actually, I think they are more often rational than not. They are mostly bashed for being irrational in hindsight, which, well, is not really fair. Also, it is just often rational, but with respect to different criteria than what is widely assumed.
- bitcoinbutter 6y ago
  The market seems to be pricing in the best case scenario here. They're saying that almost everything is back to normal by Q3. This would be 4 really bad months (March-June) total. The reality is that the future is very uncertain at this point. The market drastically underestimated the virus in early February, and it appears the same phenomenon is happening now.
  - lonelappde 6y ago
    Covid 19 will eventually (a year or 2) go through the whole population and kill a lot of people, especially pensioners. Then it will be a background level killer like flu and cars. This is bad for many humans and people who love them but it's not bad for the economy.
    - saati 6y ago
      Just the real estate price collapse that will follow the deaths is very bad for the economy.
pfortuny 6y ago
There is little meaning in the market “being right”. There is no “right” price for anything. But it looks like the economy has already crashed and there is not so much worse to go.

ur-whale 6y ago

> Stock markets are also priced according to _expectations That's the theory. Markets are in practice: . far more irrational than theory admits to, mostly because theory doesn't model feedback loops properly . almost always subject to manipulation

pwagland 6y ago
You are basically saying the same thing. Behavioural economics, in particular, says that expectations are not always rational. To be more precise, just because people expect that things will improve doesn't mean that they will. However expectations do drive behaviour, whether those expectations are rational or not.

chiefalchemist 6y ago

It's also a function of other possible investments and that risk. Rational / irrational has to be considered in the broader context. It's about risk and return. For some, despite the present situation, the stock market might be the best choice.

amf12 6y ago

> Stock markets are also priced according to _expectations_ about the future, That does not mean they are the right expectations and market is correct. Market could be over optimistic in this situation or just right. I know you don't mean to suggest that. But I just wanted to point that out. I feel "priced in" is the stupidest answer to questions wondering "why is this happening". And I know you aren't saying this either.