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To preempt the apparently inevitable "wow stocks went up on this news why wall street be like that" posts : the reason futures are up currently and the market w

To preempt the apparently inevitable "wow stocks went up on this news why wall street be like that" posts : the reason futures are up currently and the market will be up when they open in a but is because this is better than expected. Wall street was expecting unemployment to rise to over 16% [0]. Therefore, the markets were pricing in an expected 16% unemployment rate. The real number today is lower, meaning the markets are going to adjust up to meet the difference. That's why it might look like the markets are cheered by the unemployment news. They kind of are, it's better than they expected. Edit: Updated the link to a non AMP link. [0]https://www.wsj.com/articles/april-jobs-report-likely-to-show-highest-unemployment-rate-on-record-11588514401 https://www.wsj.com/articles/april-jobs-report-likely-to-sho...

Ididntdothis 6y ago
To me this indicates that the financial markets are a terrible measure for the economic experience of most citizens. They are their own system that’s not connected to most people’s economic reality. I have no problem with that but for national policies we should stop looking at financial markets or GDP but try to optimize for average income or purchasing power.
- michaelborromeo 6y ago
  The market reflects, rightly, that while the situation doesn’t look good for many certain fundamentals haven’t changed drastically YET. For example, infrastructure is still intact, demand is theoretically still there just suppressed, capacity to produce is still theoretically there. Unemployment is based on employers short to medium term outlook. I.e. Can I pay this person for a month and will the person be a net positive? So the two measures differ and in weird situations like now we see how much they differ.
  - pcmaffey 6y ago
    Or rather, it reflects that this what people believe.
  - bradleyjg 6y ago
    You can’t bring a new business or new hires up to speed instantly. Not only are the lockdown months already lost but there’s a ramp up period. Further, some of the companies in the index likely won’t survive. Even if they will be replaced down the road that shouldn’t be reflected in the prices of currently existing companies. The priced-in explanation is not plausible.
ctvo 6y ago
The narrative the market has taken into account ("priced in") the current economic factors is tiresome. If it did, we wouldn't up at the numbers we are. The more likely scenario is the market is disconnected with economic conditions, and the low volume seen in this rally are the same set of market participants creating liquidity while the majority watch from the sideline awaiting more news.
- Spooky23 6y ago
  A lot of businessy people buy into some sort of magical wisdom of the market. It’s not a particularly wise institution, and pouring money in now is just institutional players enabled by free money coming out of government. The rest are lambs heading for slaughter, as there are very significant headwinds in our future that the market has not priced in.
  - ctvo 6y ago
    The sophisticated participants are well aware of the economic realities, but as long as there's money to be made (eager retail investors tagging along), they'll keep this up, because why not?
    - Spooky23 6y ago
      There's an obvious moral hazard for these larger players, because as it stands today, heads they win, tails we all lose. We have a defacto policy of socializing risk for financial institutions. You're not hearing about money guys jumping out the window in 2020 or 2009 like in 1929. The firms are corporations that insulate the principals from the risk. (Until about 20 years ago, many of the big players were limited partnerships, for example)
  - robjan 6y ago
    If you're so sure of that, I hope you are shorting the market.
    - ceejayoz 6y ago
minikites 6y ago
Why is it a given that the stock market is reacting based on reality instead of the alternative (that the modern stock market is almost entirely divorced from "the economy")?
- vikramkr 6y ago
  The stock market is both reacting on reality and is divorced from "the economy," and will continue to become more and more divorced from "the economy" as long as the financial performance of publically traded companies continues to be divorced from GDP. The stock market value is the expected net present value of the cash flows of the assets that make up the market (realized through dividends, buybacks, exits, etc) (and keep in mind that the expectation can be and will be wrong/influenced by behavioral factors etc - expectations are calculated by humans). Today, lower unemployment than expected meant that traders believed companies' bottom lines will improve as more people than expected might have incomes and spending money. Take for granted that the market price yesterday incorporated the expectation of 16% unemployment (and I notice some argument that it doesn't - it's pretty much irrelevant if it actually did or didn't when it comes to explaining the price move today. People were happy for whatever reason to pay the price of the stock at market close yesterday with what they knew about the economy. Now that the news shock is positive, on average, they will be willing to pay more than if they recieved no news). Then, with good economic news, that investors believe will mean an increased net present value of the stocks on the market, you'll see prices go up.
bradleyjg 6y ago
If you’ve been following the headlines for the past month, there’s always some reason. Easy enough to pick something out of the air—“Chinese-American sniping less aggressive”, “Oil futures markets not quite so screwed up”, “a drug shows promise in an n=20 study” but the fact of the matter is that neither the headline writer nor anyone else really knows why the market is rapidly erasing all of this year’s losses and trending towards all time highs while economic output continues to crater and companies go bankrupt. Perhaps investors believe that governments will do whatever it takes to make investors whole given the political power investors wield through their votes and political donations. Perhaps they are even correct. Why don’t headline writers say that? “Stocks continue to rise while unemployment goes up because rich people confident they control governments”? It’s as likely or more to be true than the “priced in” narrative they’ve been hawking.
- AznHisoka 6y ago
  CNBC and financial publications always love to attach a narrative/reason to every stock movement. But the fact is nobody knows. There are just too many participants, each with their own agenda and prejudices. The “priced in” narrative is just another made up reason, but as you said, it could simply because investors believe the government just won’t let the market fail.
  - nickff 6y ago
    The problem with saying things are 'priced-in' is that it's a basically worthless statement. There are so many things priced in, that it is impossible to know or understand them all. Some are right, some are wrong, and many are in-between. I am an efficient markets believer, but I think most of the talking heads are a bunch of hot air.
    - AznHisoka 6y ago
      It is a very worthless statement if you really think about it. Everything is priced in.. because that's literally the definition of a price - it's the cumulation of everyone's belief of what is going to happen. That's like saying water is wet.

Ididntdothis 6y ago

To me this indicates that the financial markets are a terrible measure for the economic experience of most citizens. They are their own system that’s not connected to most people’s economic reality. I have no problem with that but for national policies we should stop looking at financial markets or GDP but try to optimize for average income or purchasing power.

michaelborromeo 6y ago
The market reflects, rightly, that while the situation doesn’t look good for many certain fundamentals haven’t changed drastically YET. For example, infrastructure is still intact, demand is theoretically still there just suppressed, capacity to produce is still theoretically there. Unemployment is based on employers short to medium term outlook. I.e. Can I pay this person for a month and will the person be a net positive? So the two measures differ and in weird situations like now we see how much they differ.
- pcmaffey 6y ago
  Or rather, it reflects that this what people believe.
- bradleyjg 6y ago
  You can’t bring a new business or new hires up to speed instantly. Not only are the lockdown months already lost but there’s a ramp up period. Further, some of the companies in the index likely won’t survive. Even if they will be replaced down the road that shouldn’t be reflected in the prices of currently existing companies. The priced-in explanation is not plausible.

ctvo 6y ago

The narrative the market has taken into account ("priced in") the current economic factors is tiresome. If it did, we wouldn't up at the numbers we are. The more likely scenario is the market is disconnected with economic conditions, and the low volume seen in this rally are the same set of market participants creating liquidity while the majority watch from the sideline awaiting more news.

Spooky23 6y ago
A lot of businessy people buy into some sort of magical wisdom of the market. It’s not a particularly wise institution, and pouring money in now is just institutional players enabled by free money coming out of government. The rest are lambs heading for slaughter, as there are very significant headwinds in our future that the market has not priced in.
- ctvo 6y ago
  The sophisticated participants are well aware of the economic realities, but as long as there's money to be made (eager retail investors tagging along), they'll keep this up, because why not?
  - Spooky23 6y ago
    There's an obvious moral hazard for these larger players, because as it stands today, heads they win, tails we all lose. We have a defacto policy of socializing risk for financial institutions. You're not hearing about money guys jumping out the window in 2020 or 2009 like in 1929. The firms are corporations that insulate the principals from the risk. (Until about 20 years ago, many of the big players were limited partnerships, for example)
- robjan 6y ago
  If you're so sure of that, I hope you are shorting the market.
  - ceejayoz 6y ago

minikites 6y ago

Why is it a given that the stock market is reacting based on reality instead of the alternative (that the modern stock market is almost entirely divorced from "the economy")?

vikramkr 6y ago
The stock market is both reacting on reality and is divorced from "the economy," and will continue to become more and more divorced from "the economy" as long as the financial performance of publically traded companies continues to be divorced from GDP. The stock market value is the expected net present value of the cash flows of the assets that make up the market (realized through dividends, buybacks, exits, etc) (and keep in mind that the expectation can be and will be wrong/influenced by behavioral factors etc - expectations are calculated by humans). Today, lower unemployment than expected meant that traders believed companies' bottom lines will improve as more people than expected might have incomes and spending money. Take for granted that the market price yesterday incorporated the expectation of 16% unemployment (and I notice some argument that it doesn't - it's pretty much irrelevant if it actually did or didn't when it comes to explaining the price move today. People were happy for whatever reason to pay the price of the stock at market close yesterday with what they knew about the economy. Now that the news shock is positive, on average, they will be willing to pay more than if they recieved no news). Then, with good economic news, that investors believe will mean an increased net present value of the stocks on the market, you'll see prices go up.

bradleyjg 6y ago

If you’ve been following the headlines for the past month, there’s always some reason. Easy enough to pick something out of the air—“Chinese-American sniping less aggressive”, “Oil futures markets not quite so screwed up”, “a drug shows promise in an n=20 study” but the fact of the matter is that neither the headline writer nor anyone else really knows why the market is rapidly erasing all of this year’s losses and trending towards all time highs while economic output continues to crater and companies go bankrupt. Perhaps investors believe that governments will do whatever it takes to make investors whole given the political power investors wield through their votes and political donations. Perhaps they are even correct. Why don’t headline writers say that? “Stocks continue to rise while unemployment goes up because rich people confident they control governments”? It’s as likely or more to be true than the “priced in” narrative they’ve been hawking.

AznHisoka 6y ago
CNBC and financial publications always love to attach a narrative/reason to every stock movement. But the fact is nobody knows. There are just too many participants, each with their own agenda and prejudices. The “priced in” narrative is just another made up reason, but as you said, it could simply because investors believe the government just won’t let the market fail.
- nickff 6y ago
  The problem with saying things are 'priced-in' is that it's a basically worthless statement. There are so many things priced in, that it is impossible to know or understand them all. Some are right, some are wrong, and many are in-between. I am an efficient markets believer, but I think most of the talking heads are a bunch of hot air.
  - AznHisoka 6y ago
    It is a very worthless statement if you really think about it. Everything is priced in.. because that's literally the definition of a price - it's the cumulation of everyone's belief of what is going to happen. That's like saying water is wet.