60 ms·

Why is the stock market rallying when the economy is so bad?

• nkurz 6y ago
  https://archive.is/cmMx5 https://archive.is/cmMx5 It's a decent article. Here are their 5 reasons: 1. Bets on a “V-Shaped” Recovery 2. Market Leaders Keep Rising 3. Corporate-Earnings Expectations Remain High 4. Old Habits Die Hard 5. The Fed’s Backing Personally, I'm betting we're still headed to a bloodbath, but slowly. This quarter's earnings are expected to be terrible, so this is already priced in. But the market is expecting a recovery soon after society starts opening up again. If (when) this strong recovery doesn't happen, the bottom falls out. If the reopening is combined with a second wave of epidemic and a renewed lockdown, something akin to financial panic ensues.
  • deleted 6y ago
    [deleted]
  • toohotatopic 6y ago
    Even if there is a second wave, there will be a time after Corona eventually. There won't be any new players by then so the market shares will almost be unchanged. Stock prices are discounted future profits for about 15 to 20 years. Those profits are still there when Corona is over. From that perspective, why should share prices fall by more than 5-10% for every year that Corona is locking down the economy? *edit: If anything, the economy will prosper because Corona has forced every company into the 21th century by requiring remote work and digital workflows.
    • ericb 6y ago
      > why should share prices fall by more than 5-10% for every year that Corona is locking down the economy? Risk adjustment. 1-Risk of death/bankruptcy for companies. 2-Risk of reduced consumer spending. This can happen because people are in financial shock, or because unemployment stays high. Perhaps some of these layoffs aren't "furloughs." Some of these businesses won't survive, like many restaurants. My expense is your revenue, but I won't spend if I don't feel "safe" physically and financially and if I don't have a job, well... On top of which, what if some part of society stops going out? 3-Risk of permanently slowed economic activity due to coronavirus spread in trading partners. 4-Risk that the vaccines don't work out and there is no "time after corona." Even if this risk is small, it is non-zero, and catastrophic.
    • joering2 6y ago
      Because someone has to buy products and services? With 40 mil unemployment numbers it will be hard to sell stuff when noone has power to buy. Take my mother in law as example. Hard core shopoholic. Amazon and QVC packages coming in daily. Hair nails etc done weekly at salons. Now for two weeks silence. She lost her job and empty bank account hit her like reality check. Shes on her way to a friend - they will do each other hair and nails. And when I told her it will all go back to normal on January 1st, so many people died she tells me “i am not going out anyways for very long time”
    • Dumblydorr 6y ago
      How do you know there will be a time after Corona? In all likelihood, it is here to stay like influenza and rhinovirus and other respiratory illnesses. The only way we recover the economy is by gaining herd immunity such that 25-50k yearly die, not 200k. That comes with vaccine and with wide scale exposure, which I'd wager is by 2021 summer. But even then, old folks will still die by the thousands each year due to covid 19.
      • notabee 6y ago
        At the current death rate, we're on track to reach 200k dead by early July. And that's only the deaths that are being counted. There is a substantial increase in overall mortality beyond the year to year average, beyond the confirmed Covid deaths. Considering that this disease is causing pulmonary embolisms, strokes, heart attacks, and other manifestations of out of control clotting even in healthy young people, we may realistically have already hit 200k dead in June counting the people who have died suddenly at home without being tested.
        • steveeq1 6y ago
          There are considerable financial incentives to "fudge the numbers" regarding corona. It's to the point where if someone has a stroke, and he has corona, it will be counted as a "corona death".
          • dmode 6y ago
            This is the theory that has been peddled quite a bit. But doesn’t really add up, since you can easily do a year over year comparison of death numbers. Unless, you suddenly think a significant portion of people are dying of heart attack this year
          • gvjddbnvdrbv 6y ago
            It is highly likely that if someone with corona has a stroke it is caused by the corona. Coronavirus causes clotting.
          • majewsky 6y ago
    • deleted 6y ago
      [deleted]
    • nostrademons 6y ago
      From that perspective, the stock market should have no volatility in share prices whatsoever - it should fairly value each company based on their profits over the next 15 to 20 years, and since those profits don't change, neither should the share price. Stocks are based on expectations of future profits, i.e. psychology. "In the long run, the stock market is a weighing machine. In the short run, it's a voting machine." Few investors' psychology will let them look at a year of bad news and still think "Oh, it's going to get better in the future." After about 3 months you start doubting yourself and wondering if maybe you were wrong in the first place, and you've entered a brave new world where people randomly die and commerce or long-term plans are impossible. All of the economic data - corporate earnings, employment, share prices, etc. - will reflect the new normal, so there's no reason (other than your memory of what the '10s were like) to believe that share prices would always go up.
      • shoo 6y ago
        > stock market should have no volatility in share prices whatsoever - it should fairly value each company based on their profits over the next 15 to 20 years Computing this depends on estimating/forecasting/extrapolating/guessing a lot of values. E.g. what kind of revenue growth the company will have. How the structure of company expenses may change. Parameters like a discount rate make a huge difference in the estimated value. In many cases the majority of the value for a discounted cash flow valuation of a stock comes from the tail term where you give up trying to unroll the contribution for each year and make a simpler approximation of what the company will be doing 20 years+ in the future. The computed share value has a lot of sensitivity to adjusting some of these inputs, and in many cases it is not at all obvious what values parameters should be set to.
        • nostrademons 6y ago
          But that's the point. Parent poster is assuming that the future profits of a company won't change over the next 15-20 years because of coronavirus. Everyone in this subthread is pointing out that that's not a valid assumption. We've already seen the discount rate drop to zero in the last couple months. Will it stay there? Will we get hyperinflation? Will we get deflation as laid-off workers lose their spending power? Will the target market of many companies end up dead? Will companies go bankrupt through lack of cash flow? Are we going to see civil unrest or a breakdown of political authority? Many of these are permanent consequences that will absolutely effect earnings 15-20 years in the future. The market seems to be pricing in an assumption that this will be a blip: we'll reopen, businesses will rehire, and 2021 will look much like 2019. I don't believe that's likely.
    • grey-area 6y ago
      Stock prices are discounted future profits for about 15 to 20 years. Those profits are still there when Corona is over. From that perspective, why should share prices fall by more than 5-10% for every year that Corona is locking down the economy? Thats the theory. In practice stock prices wildly oscillate around expected value (which is a gradual curve up and to the right), with no apparent logic. As shiller points out in irrational exuberance, stock markets do not consistently reflect expected long term returns.
      • koheripbal 6y ago
        No one makes the claim that short term price changes are rational. They are bets made by humans - very flawed biased humans. ... but if you can be more rational than them, then you can make a lot of money in the long term. ... but I find that most people who complain about irrational markets lack the conviction to bet against it.
    • dasudasu 6y ago
      Discounting is also a harsh mistress. If your model expected a 10% discount rate but actually achieves -20%, say next year, then it would need to produce 51% just to get back to baseline on the year after that. Early missed returns do hurt disproportionately unless there is an easy way to get back on track.
    • xcasperx 6y ago
      This is assuming a (or near) 100% efficient market. Which it definitely is not. Analysts use different methods to discount cash flows: https://www.investopedia.com/articles/professionals/072915/dcf-vs-comparables-which-one-use.asp https://www.investopedia.com/articles/professionals/072915/d... Finding R (what to discount by) can be difficult to do: https://www.investopedia.com/articles/investing/021015/advantages-and-disadvantages-capm-model.asp https://www.investopedia.com/articles/investing/021015/advan... I don't work in IB or PE so take what I put with a grain of salt, just what I've learned. Also, you know markets aren't near efficient when people invest in $ZOOM and not $ZM and when Elon tweets $TSLA stock is too high. You can look at daily gainers and losers and watch them over the course of the week. They are extremely volatile. If you're talking about the S&P500 it's a little easier to do. A little over 50% of the value of S&P 500 is the top 50 companies by weight. The top 100 equate to 70% and the top 250 equate to 90%.
      • tfehring 6y ago
        There's a pretty good technical illustration of how the discount rate impacts stock prices here [0]. This does provide one plausible answer to the headline question from TFA: Corporations' expected future profits are lower than they were pre-COVID, but the valuation discount rate is lower because the expected future return for assets in general is lower, so the present value of corporations' expected future profits is the same-ish as it was pre-COVID. [0] https://johnhcochrane.blogspot.com/2018/02/stock-gyrations.html https://johnhcochrane.blogspot.com/2018/02/stock-gyrations.h...
  • davidw 6y ago
    > a second wave of epidemic Judging by people's behavior, and the politicization of even common sense measures like mask wearing in the US, I think this is likely. I hope I'm wrong.
    • eloff 6y ago
      It's not just likely, I worry you won't even get out of the first wave. With everyone pulling in literally 50 different directions and and no leadership from the top this might just bounce between states like the proverbial hot potato. I feel bad for you guys watching from the north here.
      • ethbro 6y ago
        Just wait until we get closer to the election. Then it's going to get absolutely bonkers.
        • davidw 6y ago
          I was already worried about what might happen with this election, but the pandemic is likely to make things worse. My wife and I have been discussing logistics to get somewhere safer in the event of different scenarios, but at the end... it's just difficult to predict what might happen and where.
          • nostrademons 6y ago
            If the U.S. collapses so does the whole world. Many regions in the globe (eg. Israel & the Middle East, Eastern Europe, the East Asian archipelago) are stable because of the threat of U.S. intervention if a large regional power decides they want to dominate the region. Take away that threat and you're going to get some very quick invasions as local powers seek to take advantage of the situation. Plus the U.S. dollar is the global reserve currency, so its collapse would send financial shockwaves through many developed countries. Better to build local relationships where you are and focus on mutual aid & defense agreements with friendly local communities. The threat model here is a breakup of the U.S, not an invasion. The threat model to an individual is much less if you're in a community where the other individuals have your back, than if you're a minority or outcast in unfriendly territory.
  • joyj2nd 6y ago
    Well, what else to do with your money? It is called asset price inflation. Most assets will devalue at some point but, in the broader range, won't go to zero. This is not clear for FIAT money.
  • ramraj07 6y ago
    There's still a real possibility that there might actually be a full recovery - what's closing is small businesses, not megacorporations. The rich seem to do just fine even now. Even if most individual restaurants close, some will open back up, and more chains will move back in. In every scenario I can imagine, one thing seems inevitable - most people in this world are going to get poorer and suffer more. But I'm not convinced that the economy itself will sputter; we might just be ushering in a new economy that's far more unequal. In that case, the stocks might never go down again and people who have held off from investing are never gonna get back in.
    • changchuming 6y ago
      Megacaps don't just print money out of thin air. If you have a faltering middle class, who's gonna be there to spend money? Unless you institute some kind of universal basic income, I don't see people's buying power staying the same. Remember, 70% of the economy is driven by people buying shit.
      • KaoruAoiShiho 6y ago
        I think we're going to see just how small the mom and pop sector of the economy is.
        • mvkel 6y ago
          There was a survey that went out that said 80% of small businesses can't afford more than 3 months under the current economic climate. If that's true, does that mean we will see all small business evaporate before the end of 2020?
      • somebodythere 6y ago
        > Unless you institute some kind of universal basic income More than 100% of pre-crisis income for the service industry is being financed through the expanded unemployment and small business grant programs.
        • 6y ago
  • ethbro 6y ago
    My $0.02, we're going to see bifurcation that the market hasn't fully priced in. Not a good time to be in broad ETFs. Highly likely: Coronavirus is going to be circulating until the end of 2021 (based on transmissibility & vaccine timeline). We'll have better therapeutics to blunt the symptoms. But steps required to (intermittently) re-suppress transmission (NYC is ~20% exposed? So at minimum 1-2 more spike repeats) are going to continue to harm the economy over that period. There is no version of social distancing or lockdown that permits normal brick and mortar economic activity (and therefore normal employment levels). And there is nothing shy of those that dent infection spread once it gets going in an urban center. 50/50: Government stimulus cannot replace normal market demand over that period (i.e. "V-shaped recovery"). Firms and industries that can adapt (curbside pickup, work from home, pivot to online delivery) and are deemed essential do fine by cannibalizing their peers. Eventually, the demand destruction will hit the markets. You can't sell product to people who are unemployed and have no disposable income. Consequently, adaptive companies are going to survive & maybe thrive. Everyone else looks pretty economically grim under likely scenarios.
    • war1025 6y ago
      One interesting possibility is that the people most likely to get infected (different from most vulnerable if infected) are going to get infected this first round. What that potentially means is that they will act as effectively a fire-break for the broader population. Basically a burning of the highest throughput avenues for mass spread. If true, that would mean we get lots of localized outbreaks, but the probability of that spreading back out into an uncontrolled pandemic is much lower.
      • bavell 6y ago
        Very insightful, hadn't considered that! I'm not sure how effective this 'firebreak' will be in practice but it will certainly slow the spread to some degree.
      • shibeouya 6y ago
        There are recent research papers supporting that theory, and lowering the threshold for herd immunity much lower to 30-40% If that is the case then places like NYC are probably pretty close.
  • klenwell 6y ago
    Thanks for the summary. This is a question that had piqued my curiosity. Based on past bubbles, I cynically assumed it was mostly delusion ("market can stay irrational longer than you can stay solvent"). Paul Krugman provided his own answer a few days ago in a Twitter thread: Two lessons here. First, the Fed saved the world economy from total disaster (again). Second, the stock rebound is not a sign that everything will soon be OK. It's not telling us that the economy is great, but rather that investment opportunities other than stocks are lousy. https://twitter.com/paulkrugman/status/1256208478282158085 https://twitter.com/paulkrugman/status/1256208478282158085 This echoes @magicsmoke's explanation at the top of this thread and helped change my mind a bit. Like you, I still expect a bloodbath eventually. Among this article's explanation, #1-3 sound like folly to me. And I'm guessing 4 & 5 can only go so far when 1/3 of the economy is out of order. It feels like a massive (long and slow) hurricane has just made landfall and there's still too much rain and wind to see how much damage has actually been done yet. But investors seem to want to pretend when the storm clears, the economy will somehow still be standing there unscathed and everyone will be able to just head back to work.
  • 60secz 6y ago
    Yep, this rally seems like an extended Bull Trap. Surprised slow bleed hasn't started yet. Falling knives may likely happen on vaccine bad news and subsequent waves with further bleed outs.
• godelzilla 6y ago
  Because the stock market is a pyramid scheme propped up with printing money to enforce rampant inequality? Just a guess. https://www.cnbc.com/2020/03/27/the-feds-balance-sheet-just-passed-5-trillion-for-the-first-time-ever.html https://www.cnbc.com/2020/03/27/the-feds-balance-sheet-just-...
  • QuesnayJr 6y ago
    The bulk of the Fed intervention is in the bond market, particularly Treasuries. They are also increasing their intervention in the exchange rate market. If the Fed was trying to pump up the stock market, wouldn't they buy stocks? Instead it looks like to me the Fed is essentially financing the US government's fiscal stimulus.
    • deleted 6y ago
      [deleted]
    • kitotik 6y ago
      A large portion of the stimulus is going to publicly traded companies, so that would have the effect of propping up stocks that may otherwise trend towards zero.
      • yborg 6y ago
        There are more or less no limits on the stimulus money, so corporations that have issued debt to buy back shares can use it to retire that debt and then issue even more debt in the current hyper-low rate environment. It's essentially a way for companies to transfer the money into the hands of their executive management.
        • kitotik 6y ago
          I had a very hard time understanding why this setup was so widely accepted during the last corporate welfare program in 2008/2009 when the amount was in the $500B range. I’m now at a complete loss as to why there isn’t more of an outcry when it’s in the $3T range.
• Causality1 6y ago
  After five decades of deliberately severing worker compensation from worker productivity, the stock market is now just a barometer for rich people feelings. When they're feeling good it goes up, when they're feeling bad it goes down.
• toohotatopic 6y ago
  Could it be that it is not so much the stock market rallying but the dollar plumbing? Money will be printed to keep the economy going. If people assume that this will devalue the dollar then stocks are a safety heaven and demand for them increases which drives up prices whether the dollar is falling or not.
  • simonh 6y ago
    The dollar plumbing relative to what? Not other currencies by the looks of it.
    • toohotatopic 6y ago
      All other countries have the same need for printing money, so the value compared to other currencies should remain stable.
      • huhnmonster 6y ago
        That is obviously true, but that poses another question: Since there is no "real" value for the dollar to compare to (same for all other currencies), what if all countries had printed money at the same rate and around the same timeframe? Comparatively, it would look like nothing changed, but in my opinion, the market would want to price that in as some sort of "inflation" (no idea if this really is inflation at that point), since compared to 2019 the intrinsic value of companies probably has not changed too much. This is as very wonky explanation and I am aware that it likely has several errors along the way, so please tell me what I am not considering, I am genuinely interested.
        • dharma1 6y ago
          You could compare it to the value of gold over time
        • legolas2412 6y ago
          In that case, all currencies will fall in comparison to gold. It is happening though, but slowly.
• xwdv 6y ago
  Because for most companies, the fundamentals after the pandemic won’t be changed. Great companies are being sold at massive discounts, and as the buying escalates shorts are getting squeezed out and forced to cover. Anecdotal, but during the pandemic my portfolio had shed up to $60k at its lowest point around March or April, and I didn’t sell anything, in fact I started accumulating shortly after the bottom. Since then, it has not only recovered but it is now climbing to all time highs.
  • vnchr 6y ago
    Interesting that some people really dislike this answer.
    • xwdv 6y ago
      The funny thing is, I’ve been giving stock and investment advice on HN for years, and always get downvoted. Yet if you had followed my advice, you would have made a ton of money. Some people cope with their FOMO with denial and downvotes, or saying cliche things like “Ya can’t beat the market” or “The Fed can’t keep printing money forever!”
  • MattGaiser 6y ago
    P&G shed 20%. Its fundamentals have not changed at all.
• magicsmoke 6y ago
  > And as has often been the case in recent years, investors find themselves faced with few attractive alternatives if they opt out of betting on stocks. The problem is so familiar it has its own acronym: TINA, or There Is No Alternative to stocks. Cash: Gets eaten away by inflation. Although the CPI doesn't indicate high inflation it only measures consumer goods. Inflation is there in the price of investments. If you don't invest now, it'll cost you much more in the future to own assets with positive rates of return. Bonds: Near 0% interest rate, practically no better than holding cash. Real Estate: Not nearly as liquid as stocks, but the price of real estate is propped up by similar logic. International Investments: Now this could be interesting if capital flight from the US begins occurring. However, every other economy is hurting like the US's or has significant problems with transparency and whether investors can get their money back out again. Stocks are more than just their market price. They represent ownership in a piece of the American economy and its future dividends. As of 2016, the richest 10% of America owns 86% of its stocks / future economic output. With the economy plunging while stock prices remain high, this means the fence between being a renter and a owner just got even higher.
  • bb2018 6y ago
    I agree. Also, I know it is hip to say that Wall Street is short-sighted, but in reality it is one of the the few fields where people routinely think decades at a time. If you run a large pension fund or investment account you were already risk-weighted and if the cash isn't needed for 10+ years you'd much rather own a slice of the world's largest companies ten years from now instead of gold or cash under a mattress.
    • chiefalchemist 6y ago
      It's all about risk vs return. Furthermore, in the current environment of high adversity, and increased scarcity there will eventually be innovations. Some of those will translate into products and profits.
      • TAForObvReasons 6y ago
        The problem is perception. Stocks are increasingly seen as a risk-free play, backstopped by a Fed that will take drastic action if prices fall. In that world, why bother innovating? Why bother investing in innovation when the risk-free play has a huge positive expected return?
• eruci 6y ago
  Little else to do while sitting at home with some spare cash other than gambling at the stock market.
• xienze 6y ago
  Rallying is a relative term. It’s been going sideways around 24K (Dow) for weeks. But the answer is: where else are you going to put your money?
  • icedchai 6y ago
    Look at the Nasdaq. It's come back much faster than the Dow.
    • MattGaiser 6y ago
      Companies on the NASDAQ like Amazon are doing tremendously well.
• cft 6y ago
  This is the inflation that everyone is afraid of. Since the money has been mostly injected from the top of the society, it has been confined to the asset bubble. If this money filters through to the bottom or there's significant injection directly to the bottom (SBA payment protection, $1200 direct assistance, basic income, etc) then we will see consumer inflation as well
  • jhallenworld 6y ago
    There is much bigger risk of deflation during a depression. Do you really think there will be wage inflation when there is 20% unemployment?
    • formercoder 6y ago
      Exactly this is why I don’t understand the folks who think inflation is a purely monetary phenomenon. With demand shocks like this how can we not have deflation?
      • grandridge 6y ago
        Inflation comes from over reaction of trying to fight/prevent deflation
      • MattGaiser 6y ago
        They are people who have never bothered to look at an inflation table. They are content to blindly repeat that one economics textbook they read.
      • changchuming 6y ago
        Wall Street and main street are two different markets. OP specifically said we'll see consumer price inflation only if money trickles down to consumers, which is evidently not the case. Asset prices has gone to the moon however since 2008.
    • FlyMoreRockets 6y ago
      Too many people competing for too few jobs should keep wages down.
• Eliezer 6y ago
  I can't see the article because paywall, so out of grim curiosity: Do the journalists (at the so-called "Wall Street Journal") get through the whole article without mentioning once that "Stocks react to changed forecasts as events become predictable, not to events as they play out the forecast" or "Stocks discount the next 20 years of revenues, not revenues this year"? Has economic illiteracy progressed that far? Or is there yet a tiny redoubt of econoliteracy somewhere in the newspaper?
• jonathanpeterwu 6y ago
  Worth reading all chapters that are in here, but chapter 3 gets at the meat of where we're heading. We're at the end of a long credit cycle post WWII, dislocation of the dollar from the gold standard, to bretton woods, to now QE printing of money being loaned to the government by the fed. Market reflects the cash flow available being printed by the FED to keep the markets up. https://www.principles.com/the-changing-world-order/ https://www.principles.com/the-changing-world-order/
  • jalopy 6y ago
    Don't see a chapter 3?
    • peterwoerner 6y ago
      Where we are now at the end of chapter 1?
  • vertak 6y ago
    Thank you for sharing this! I’m always grateful to read some of Dalio’s thoughts on the future.
• JoshTriplett 6y ago
  The best argument I've seen is that the stock market typically prices things in faster than other parts of the economy, so the stock market took the hit well before things like unemployment indicators did. Also, some stocks are doing alright, while others are doing badly, depending on what sector they're in. Looking at the aggregate gives misleading information.
• submeta 6y ago
  Not many alternatives. Interests almost zero or even negative. - How else are we supposed to save for the retirement.
• Dumblydorr 6y ago
  How about because big companies are propped up by the government and would always get bailed out? The economy is stacked towards big players, who have power to lobby and get favorable regulations. Therefore, good times or bad, big companies will get paid by Uncle Sam or by all of us, or both.
  • kazen44 6y ago
    also known as privatize the profits, socialize the losses.
• garrickvanburen 6y ago
  the stock market aggregates bets on tomorrow. We want bets that tomorrow will be better. Though, I agree it looks more flat currently (cautiously optimistic?).
• throwaway_jobs 6y ago
  People don’t realize in 2008 on the verge of financial collapse the government passed two bailouts totaling $1.8T leading to the longest bull market in history. We have already passed bailouts totaling close to $7T...no matter what happens the market will rocket, basically WW3 has been priced in so as long as that doesn’t happen it’s to the moon.
  • MattGaiser 6y ago
    The USA also had the longest period of economic growth in history after 2008. https://www.cnbc.com/2019/07/02/this-is-now-the-longest-us-economic-expansion-in-history.html https://www.cnbc.com/2019/07/02/this-is-now-the-longest-us-e...
    • stefan_ 6y ago
      Or, you know, stock market growth, like this very title alleges. Taking on debt and selling fundamentals just so you can issue some stock buybacks.
• IAmGraydon 6y ago
  Could it be that despite everyone freaking out, the wisdom of the crowd (the market) is pretty sure everything is going to be OK? It's possible that the market is the only thing acting rational right now.
  • TheOtherHobbes 6y ago
    Markets can stay irrational longer than they can stay solvent. "The wisdom of the markets" doesn't exactly have an inspiring track record.
• MattGaiser 6y ago
  1. The economy is not that bad for many companies in the stock market. Why would Proctor and Gamble be that negatively impacted during this? It lost 20% of its value though. Same with a stock I hold. It was slaughtered for being an airline stock, but it mostly does flights to remote communities, which are a government-funded necessity so they can eat and have medical care. P&G should not have meaningfully fallen and this other stock should have lost maybe 20%. It lost 70%. Now it is only down 40%. So the market didn't know what to do and overreacted in many places. Same with all sorts of natural gas stocks which got slaughtered along with oil. Much of the initial drop was unjustified. 2. The stock market will walk away with a larger share of the economy than it had before. Vast amounts of shopping moved to Amazon and online venues. The large publicly traded restaurants will survive or just buy out flailing franchisees at a discount. So less pie, but a greater share for public investors.
  • drtillberg 6y ago
    If insurers or sovereign wealth funds or newly unemployed need to raise cash by selling stock then ... naturally stocks like P&G should fall with the rest of the market ... because market action is determined in all but the long run by buyers and sellers, less so the companies that issued the stock originally (unless the company is buying or selling)
  • stefan_ 6y ago
    Uhm, because P&G is a full out consumer business and there is now 15% unemployment?
    • MattGaiser 6y ago
      P&G mostly sells things that are essential, so these are not the things typically cut very much even when people are living on 60% of their incomes. P&G did not take a large hit in 2008 either. P&G stock did though. https://www.macrotrends.net/stocks/charts/PG/procter-gamble/revenue https://www.macrotrends.net/stocks/charts/PG/procter-gamble/... https://www.macrotrends.net/stocks/charts/PG/procter-gamble/net-income https://www.macrotrends.net/stocks/charts/PG/procter-gamble/...
• mathgenius 6y ago
  People buy into a rally because they don't want to miss out, they expect it to keep on rallying. It's herding behaviour, and leads to so-called dead-cat bounces. At least in the short term, there's no reason to expect any intelligent price discovery from the markets. Come back in six to twelve months and then we will see.
• fallingfrog 6y ago
  The fed can step in and bail out Wall Street by printing money only so many times. Eventually by papering over the small disasters, they make the eventual collapse of the whole system a certainty.
• fallingfrog 6y ago
  This quote from Jeffrey Sachs might offer some context: “Look, I meet a lot of those people on Wall Street on a regular basis right now... I know them. These are the people I have lunch with. And I am going to put it very bluntly: I regard the moral environment as pathological. [these people] have no responsibility to pay taxes; they have no responsibility to their clients; they have no responsibility to counter parties in transactions. They are tough, greedy, aggressive, and feel absolutely out of control in a quite literal sense, and they have gamed the system to a remarkable extent. They genuinely believe they have a God-given right to take as much money as they possibly can in any way that they can get it, legal or otherwise. If you look at campaign contributions, which I happened to do yesterday, the financial markets are the number one campaign contributors in the US system right now. We have a corrupt politics to the core.. both parties are up to their necks in this. But what it’s lead to is this a sense of impunity that is really stunning, and you feel it on the individual level right now. And it’s very, very unhealthy, I have waited four years, five years now to see one figure on Wall Street speak in a moral language. And I’ve not seen it once.”
  • Ididntdothis 6y ago
    They also pay big bucks to ex politicians to give speeches and some politicians and regulators get big money jobs there after leaving office .
  • schkkd 6y ago
    There's this Wall Street movie made in 1970 (?) about this very kind of people.
• neonate 6y ago
  https://archive.md/WOit5 https://archive.md/WOit5
• Mikeb85 6y ago
  Current price = future price. Principle of economics and pricing. Meaning an asset is priced according to what someone thinks it'll be worth in the future. Let's also not forget the massive sell off in the markets not too long ago. And as someone else said, there's also nowhere else to put money. All these are reasons why people would buy into the market right now. Or hey, it also could just be a dead cat bounce...
• beervirus 6y ago
  https://brrr.money/ https://brrr.money/
• mikorym 6y ago
  I currently work in finance, and particularly with dividends, and my opinion as a casual observer is that a prudent investor looks for stability. So, the key is not whether you can find the strongest performance, but that you can predict better how things are changing. Two months ago everyone was waiting to see what would happen. Now the chips are starting to fall and investors can act accordingly. A simple example is that agriculture is now seen as a more stable investment where, especially in South Africa, it's actually a high risk business. But it is much less risk now in comparison to hospitality. The only other reason I can see for (perhaps premature) quick rallying is with today's technology you can move around investments much more quickly and hence corrections and speculation are all sped up in terms of their time frames.
• kerkeslager 6y ago
  Because the stock market doesn't represent the economy as most people experience the economy. First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just speculation. The stock price might remain tied to the performance of the company in broad strokes, but without regular dividends, sales, or buybacks to tie the stock back to the company, there's nothing to keep it from becoming disproportionate with regards to the company's value.[1] Second, when companies do pay dividends or buy back stock, it's sometimes done by borrowing money. This actually drives down the value of the company (since now the company has to pay interest on those loans) but drives up the value of the stock--the value of the company and the value of the stock are going in opposite directions. Third, with the wealth disparity in the US, even if 90% of people pull out of the stock market, it's quite possible for the stock market to go up, because the other 10% own >80% of the stock market. 90% of Americans can divest completely from the stock market, and it could at most lower the stock market by 20%. This is why stock market metrics are not metrics I care about when determining how the economy is doing. [1] EDIT: What I mean by "broad strokes" and "disproportionate" here is: Events occur which change the value of the company and the value of the stock, and at least the direction of these price with regards to these events is likely to align. In broad strokes, because people believe the value of the stock is tied to the value of the company, if a "good" event happens, the stock price goes up, and if a "bad" event happens, the stock price goes down. But it's pure speculation how good or how bad these events are. If big bad events are downplayed so they only are represented as slight drops in stock price, and small good events are marketed well so they are overrepresented as big upticks in stock price, then over time this can result in a stock price that goes up, when the value of the company is actually going down. It's actually even more complicated than that.
  • coffeemug 6y ago
    > [...] these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality [...] John Maynard Keynes developed this idea (that came to be known as Keynesian beauty contest[1]) in 1936. This isn't a new property of the market, it has always been the case. > when companies do pay dividends or buy back stock, it's sometimes done by borrowing money It's not clear that this is a problem, given that cash is basically free (though they do have to pay back the principal). I'd be interested to see what proportion of dividends and buybacks comes from borrowed cash. I suppose calculating such a thing would be very difficult, but it'd be interesting to see some analysis on this. > if 90% of people pull out of the stock market, it's quite possible for the stock market to go up What if 90% significantly cut consumption? Ultimately the companies have to sell their products to somebody. [1] https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest
• fsflover 6y ago
  See also: https://news.ycombinator.com/item?id=23116055 https://news.ycombinator.com/item?id=23116055 Ask HN: What the heck is going on with the stock market?
• clomond 6y ago
  Because a company’s stock price is in theory what the market expects is the sum of the total future discounted cash flows that unit of “equity” generates. [1] This means that fundamentally, stocks are forward looking several decades and beyond. The economy right now might be bad but if the expectation is that there is a slow and long recovery lasting 2 years, if a company is expected to be operational, profitable and growing in year 3-year 10, those profits are built into the share price. [1] https://en.m.wikipedia.org/wiki/Valuation_using_discounted_cash_flows https://en.m.wikipedia.org/wiki/Valuation_using_discounted_c...
  • dcolkitt 6y ago
    Exactly. Here's a very intuitive way to think about it. Disney World's revenue has currently fallen by 100% this period. How much do you think the fair market value of Disney World should decline by? Clearly the answer is much less than 100%. Even if Disney World stays closed for two years, it's clearly a very valuable asset. As an asset it probably has a 50 year effective life, so 2 years of closing represents no more than a 4% loss in cash flow. Interest rates are essentially zero, so Disney World should be no more than 5-6% less valuable than it was before the pandemic. The biggest risk for corporate assets isn't the direct impact of the lockdown. It's whether the experience leads to any permanent changes in people's behavior. If there's a permanent cultural shift where people stop going on vacation or visiting crowded amusement parks, then Disney World might be worth much less. But this is significantly more speculative than estimating the direct impact of the lockdown.
    • skybrian 6y ago
      I assume you're ignoring the discount rate entirely for simplicity? It doesn't seem like money ten years from now should be worth the same as money today. But I guess that implies that interest rates should go up eventually.
      • jldugger 6y ago
        No, I think the OP addresses that obliquely here: > Interest rates are essentially zero
• hop 6y ago
  It’s rallying because there are a lot of undervalued stocks. There have been really good deals the past 2 months. And stocks are a great inflation hedge.
• rsp1984 6y ago
  What is most mind-boggling about this recent rally is that basically all the major indices are back to where they were Q2/Q3 of 2019. The Nasdaq is even back to January 2020 levels. Therefore, the market apparently believes that the environment for stocks today - COVID raging, approaching 20% unemployment, mass bankruptcies, etc - but also central banks creating trillions of USD - is overall as good as it was towards the end of 2019. Since it is clear that even with the central banks' support economic recovery to late-2019 levels is going to take while, the conclusion can only be that the market anticipates most of the central bank's new money to drive up asset prices again instead of driving the real economy. Sad times.
  • TheBlight 6y ago
    The unemployment numbers are deceptive. >80% are furloughed and would have their jobs back as soon as lockdowns end and business picks back up.
    • netsharc 6y ago
      But realistically business won't bounce back this year, will it. Big parties in packed bars? Even without any governmental restrictions, I think a lot of people will avoid these things; because they don't want to get sick. This will also affect e.g. numbers of Uber rides, as well as how much beer/food the bars/restaurants buy. Businesses connected to foreign markets will also be affected by lockdowns there; airbnb will still be in a world of pain, as well as travel-related businesses.
      • TheBlight 6y ago
        Anecdotal evidence suggests maybe people are ready to get back to normal sooner than many might suspect? e.g. https://twitter.com/nick__puckett/status/1259541624389955584 https://twitter.com/nick__puckett/status/1259541624389955584
    • TheOtherHobbes 6y ago
      They're partially deceptive at best. The economy wasn't exactly flying even before the virus. Consumer debt (nearly $14tn - around 2/3 of GDP) was stifling consumer demand. Corporate debt was around $10tn - half of GDP. When there's a major shock a lot of that debt will be written off, either be negotiation or by bankruptcy. So unless the Fed plans on making good on all of those debts there's going to be a big smoking hole where those obligations used to be, with corresponding losses to creditors. The Fed has no interest in Main St, and is perfectly happy to hand out free money to Wall St to keep the party going. But if the economy isn't operating normally, that money is going to turn into worthless paper because it can't be spent on the usual things the 1% spend money on. When that happens you get real inflation, because the face value of money becomes disconnected from real spending power. Even if everyone went back to work tomorrow, people will keep getting ill and dying and business won't be back to normal for at least six months - possibly twelve. If workers don't get generous government hand-outs to keep demand ticking over in the real economy, there are going to be mass bankruptcies, and the debt collapse cycle will have started.
• aazaa 6y ago
  > Measures by the Fed and U.S. government have underpinned the recent rally across markets. The Fed made it clear it was willing to step in to buoy the economy. Why bet against the market when the central bank is willing to do that? The Fed has gone far further than just this. The Fed is going to buy as many assets as it takes. Treasuries. Corporate bonds. Junk bonds. Munis. It'll buy the assets directly. It'll buy them through ETFs. The Fed will buy so much with its infinite balance sheet that you're going to get tired of getting rich by front-running the Fed. The Fed is in the fight of its life. The enemy is dollar strength. Have a look at what the dollar was doing during the depths of the recent crash. It was going much higher. Here's an investment hypothesis. It could be wrong, but for now, it explains some things. Should the dollar start climbing above 100 on the DXY index[1], watch for: falling stock markets; falling bond markets; falling commodities and gold markets; falling bitcoin; failing businesses; bank distress. At the same time, watch for the Fed to announce new asset purchase acronyms. The dollar is the world's currency and the Fed is the world's banker. There's a lot of dollar-denominated debt offshore. When the dollar strengthens, those loans get more expensive to service. To raise cash, foreign holders of stocks and bonds start selling.[2] The US stock markets have become strongly coupled to the US dollar and simultaneously a predictor of Fed action. Dollar goes up, stocks go down, Fed starts buying assets. Dollar goes down, stocks go up, Fed steps back. The thing to watch for in the coming months is some kind of dilemma. For example, watch for Fed purchases to lead to a stronger dollar. At that point, the Fed will need to decide which master to serve. [1] https://www.tradingview.com/symbols/TVC-DXY/ https://www.tradingview.com/symbols/TVC-DXY/ [2] https://www.lynalden.com/global-dollar-short-squeeze/ https://www.lynalden.com/global-dollar-short-squeeze/
  • shostack 6y ago
    Another factor to consider...there are other nations that are actively working to undermine the strength of the dollar as the global reserve currency. If they can sufficiently erode trust in the US financial machine, much bigger problems arise.
  • deleted 6y ago
    [deleted]
  • anm89 6y ago
• lokl 6y ago
  Several comments here about alternatives to stock, the poor returns of bonds, and cash being eaten by inflation. If you've been thinking about this and are a U.S. investor, read about I Bonds. Or, if you aren't worried about inflation and are investing for 20+ years from now, don't forget about EE Bonds.
  • seibelj 6y ago
    IBonds are linked to the government-approved CPI and the basket no longer represents “true” inflation which, in my opinion, should include the increasing cost of housing, education, medical insurance, etc. rather than cheap stuff outsourced to foreign countries to manufacture.
    • lokl 6y ago
      I am also concerned about this, especially medical costs. What alternatives better track this type of inflation?
• robodale 6y ago
  The (US) stock market collectively "thinks" the economy will pop back up relatively soon (Q4-ish, 2020). If that rosy picture in the stock market's mind turns out incorrect, then rally go bye bye.
• trhway 6y ago
  the newly printed $6T need to be absorbed, and the interest rate is low, and no new assets is produced, thus stocks and real estate.
• humaniania 6y ago
  Maybe something to do with the Federal Reserve buying $2.5 Trillion in assets over the past 2 months? https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL
  • proverbialbunny 6y ago
    For the first time ever the Fed started buying ETFs. So yah..
• fortran77 6y ago
  The stock market is still down from its 2020 high point. So this means that the initial drop was an overcorrection according to the all knowing "market".
• avvt4avaw 6y ago
  The stock market is a leading indicator. Economic data (unemployment, manufacturing, GDP etc) are all lagging indicators. The terrible economic data (high unemployment, low growth) already showed up in stock market returns in the first three weeks of March. What we have seen in April/May represents improving expectations for the economy in the future (as in, a few months to a few years... in theory the market discounts future earnings to infinity, but in practice it is not looking ahead more than 3-5 years most of the time, which is why it is so volatile).
  • the-dude 6y ago
    Perhaps in this particular crisis, unemployment may be a leading indicator instead of a lagging one.
• new_realist 6y ago
  Monetary stimulus almost completely explains the irrationality of the equity markets.
• d_burfoot 6y ago
  I work at a big tech company. One of the big realizations we've made is that WFH is not killing our productivity - it may actually be increasing it. If that is widely true, it has huge implications, and points towards an enormous amount of value that can be unlocked, by allowing professionals to work wherever they want (presumably in lower CoL locales). This article indicates that the housing crisis costs the US economy 1.6 trillion a year, so we should be able to recoup that immense loss (about 2x the military budget) by exploiting remote work tech. https://www.citylab.com/equity/2015/05/the-urban-housing-crunch-costs-the-us-economy-about-16-trillion-a-year/393515/ https://www.citylab.com/equity/2015/05/the-urban-housing-cru...
  • mancerayder 6y ago
    I don't know. I work in tech and almost everyone I know is finding themselves less productive and can't wait to get back to the office. Maybe because most of us live in an apartments and not magestic houses with woods or lakes behind them, and the feeling of being trapped indoors is neither healthy nor pushes one to work more effectively. My PC is in my living room and I'm on it, in the same seat, at the same desk, using the same monitor as I use for work, typing to you here on a Sunday afternoon. Tomorrow at 8:30 am I will be here, too. And I was here for hours reading the news and trying to find a couch online. I can't wait NOT to WFH. I hate it. The option to do so is great, though -- maybe one Friday out of every two I will start to do it.
    • bagacrap 6y ago
      Indeed, the home office space is important If you had a permanent work from home option, you might rent an apartment with some office space, and renting a 2 bedroom somewhere that is not SF is probably still cheaper than a studio in the city.
    • cheschire 6y ago
      That’s where the lower COL comes in. If your Silicon Valley paycheck gets spent in Midwest American living, you’d be able to afford an office to keep your work life separate.
    • 6y ago
• paulpauper 6y ago
  An increasingly large % of the economy is concentrated in a handful of highly profitable, efficient tech companies and multinationals such as Walmart, Microsoft, Amazon, Google, and Facebook. Stimulus $ is pure bottom line growth for these huge companies as smaller businesses close. Also, huge growth in business to business commerce, bypassing consumer spending altogether. Facebook and Google selling ad space to other big businesses such as IBM. Microsoft, Nike, or Proctor and Gamble. Also, the wealthy are more impervious to economic weakens than the lower classes, and consumer spending growth from the top 10% is enough to offset loses in the bottom 90%.
  • encoderer 6y ago
    Yes, all this, plus most of those out of work today are doing fine because of the stimulus and additional $2400 a month in unemployment from the federal govt. I know family members who are making more at home now than they do when they are working.
    • schaefer 6y ago
      i qualify and filled for unemployment benefits over a month ago after a several hundred employee layoff at my company. I still have not seen a penny. Many others I've talked to in my state are in exactly the same position. in Nevada, the department of employment has dropped business hours to just three days a week. there are no queues when you call in. there is no "your call will be served in the order this call was relieved". there is only the busy signal. day after day - the busy signal. people's ability to actually work with the employment office differs dramatically state by state. please don't generalize. Platitudes about how the unemployed are "doing just fine" aren't universally true. Many of us are watching personal savings vanish week by week while with no resolution in sight.
      • Jommi 6y ago
        That shouldn't mean you will never see a penny. AFAIK you will be prorated on the payments for sure, but of course if it's been over a month seems like there is a bottleneck in the governmental process for the benefit. That doesn't disprove what the OP was saying.
• legobridge 6y ago
  I'm new to reading paywalled articles and the HN FAQs said it was ok to ask for help in the comments. Can someone please help me out? I really want to read this article.
  • OatsAndHoney 6y ago
    Apple News, it's the cheapest way to get the WSJ, or subscribe to WSJ on their website.
• LatteLazy 6y ago
  Why do people write article with false premises just to make readers click and state opinions and argue? Oh yeah, it's click bait bullshit.
• CalRobert 6y ago
  Where else you gonna put your money? Bonds? Cash? Land? Foreign funds? Nothing looks great. Maybe invest in silly tech companies? Who knows, maybe one of them is the next Google! As for how things are bad for the regular joe or jane while stocks go up; companies could literally enslave a good chunk of the population and still be profitable, meriting a high stock price - moreso, even. There's prior art here. High stock prices can be an indication that companies are just really good at extracting the wealth produced by labour.
  • Gibbon1 6y ago
    > High stock prices can be an indication that companies are just really good at extracting the wealth produced by labour. Western companies have become adept getting handouts from governments and central banks. Chinese companies extract value from labor.
• cosmojg 6y ago
  "The stock market is not the economy, and the economy is not the stock market." [1] The stock market looks to the future while common economic indicators like GDP and unemployment rates look to the recent past. [1] https://youtube.com/watch?v=0ECqDaPjjV0 https://youtube.com/watch?v=0ECqDaPjjV0
• ergocoder 6y ago
  I notice that modern companies don't pay dividend anymore. They optimize for growth and survival, which makes sense. Google and Apple have so much cash that they wouldn't really need to make money for years, and they would still survive. Paying dividend is kinda okay, at best. Buying back stock is a bit better. The best is to just keep th cash. Don't get me wrong. As a shareholder, I like it. But it's bad for the company.
  • mrep 6y ago
    What? Most companies do return money to shareholders and for your 2 examples, Apple returned 81 billion dollars to shareholders last year [0] and Google started a 25 billion dollar buyback last year [1]. [0]: https://www.barrons.com/articles/apple-stock-buyback-dividend-earnings-multiple-yield-51578342838 https://www.barrons.com/articles/apple-stock-buyback-dividen... [1]: https://www.businessinsider.com/google-2q-earnings-beat-stock-price-reaction-25-billion-buyback-2019-7 https://www.businessinsider.com/google-2q-earnings-beat-stoc...
    • ergocoder 6y ago
      Buying back is still better than dividends. Because you get stocks back. The point is companies now save a lot of money for growth and survival.
• deleted 6y ago
  [deleted]
• atlgator 6y ago
  Inflation has been hidden since the Obama years of quantitative easing due to globalization. You can pump cash into the market and, if you keep the cost of consumer goods low by outsourcing to 3rd world labor, the CPI doesn't increase. Meanwhile, the cost of items that are produced here, e.g. homes and cars, skyrockets. Trump has continued the trend of pumping the market and accelerated it in the last few months at an alarming rate. Problem is, globalization is decreasing as countries isolate. No place to hide the inflation. The stock market will continue to increase despite the bad news.
• ryansmccoy 6y ago
  While there are some good explanations already mentioned, the bottom line is that stock prices are forward-looking in the sense that investors buy and sell stocks not based on what happened yesterday or what is happening today, but rather based on their expectations for the future (6-12 months ahead). So, basically, the market is signaling that on a whole (i.e. weighted average growth of all the companies in the S&P 500) things (i.e. revenue/eps) aren't going to get dramatically worse and potentially going to get increasingly better.
  • matthewdgreen 6y ago
    The stock market is signalling that it believes 6-12 month revenue expectations for the S&P 500 today [14.7% official unemployment, consumer spending trashed, entire sectors facing months of uncertainty] are roughly the same as they were in October 2019 [3.6% official unemployment, consumer spending rising]. This does not seem a logical conclusion, and so people (in this thread) are asking whether the market is functioning correctly.
    • JoshuaDavid 6y ago
      Where are you getting the "6-12 month" number for how the revenue expectation ties to stock price?
      • matthewdgreen 6y ago
        My comment was just a response to the theory in the parent comment.
• lowdose 6y ago
  Because the recent economic stimulus didn't trickle down to the people that needed it. At least 80% of it ended up in the pockets of people that don't live from paycheck to paycheck and a after night sleep they decided to buy stocks instead of letting the value rot on their lousy bank account.
  • mrep 6y ago
    Have you read the CARES act? Pretty much all of the freely given out money goes out to citizens directly through checks/increased unemployment or indirectly by paying for payroll. The other handouts are for things like healthcare. The rest is mainly in loans that will get payed back.
• jackallis 6y ago
  and yet nobody talks about democratization of investing. It is now so easy to invest that anybody, without having to think about yikes i dont want to spend $10 buying it, can invest in 10 minutes.
• cs702 6y ago
  What truly boggles my mind is this: * Personal consumption expenditures constitute 67% to 68% of US GDP every year: https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&nipa_table_list=5&categories=survey https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri... * Business revenues are the flip-side of those consumption expenditures, because every dollar consumers spend, to a close approximation, is a dollar of revenue for some business -- whether it's your Aunt Tilly's burger joint, your local movie theater, one of the airlines, a downtown hotel, an amusement park like Disneyland, a retailer like Neiman Marcus, and yes, Amazon and Google too. So, 67% to 68% of US GDP every year, give or take, is made up of business revenues from sales to consumers. * If consumer spending in the US collapses by, say, 30% (a figure I've seen in some articles), business revenues from sales to consumers in the US necessarily declines by a similar magnitude at the same time. If two things are near mirror images of each other, and one declines 30%, the other declines by a similar magnitude too. For every expense not incurred by consumers, there's an equal sale not made by some business. I don't even know how to reason about the impact of a 30% collapse in business revenues across the entire country. See also: https://news.ycombinator.com/item?id=23116055 https://news.ycombinator.com/item?id=23116055
  • proverbialbunny 6y ago
    It's not cleanly divisible across companies. Some will get hit very hard while others will be nearly effected, similar to unemployment right now. Some people are untouched and others are hit hard.
    • cs702 6y ago
      Yes, of course, but think beyond the immediate consequences. If that -30% collapse in consumer spending affects mostly, say, half of all businesses, that half will see its consumer revenues collapse by around twice as much, or -60%. Most of those businesses will fail and most of their employees will be out of a job, contributing to a greater collapse in consumer spending. The economy seems to me unlikely to be able to "repurpose all those human atoms" quickly enough, as many people are and will be understandably afraid of returning to work before there's a treatment or vaccine.
• madengr 6y ago
  What do they mean by rallying? The S&P is down 10% from the start of all this crap. My 401k is down a little more than that. Sure, it’s higher than 1 month ago, but may take 2 years to recover.
• dnprock 6y ago
  This article lists 5 reasons: 1. Bets on a “V-Shaped” Recovery 2. Market Leaders Keep Rising 3. Corporate-Earnings Expectations Remain High 4. Old Habits Die Hard 5. The Fed’s Backing The market misses an important point: a solution to the Coronavirus threat. It could be a drug, a vaccine, tracing technology. We don't know. The virus can also go away on its own. The market predicts this threat is somehow going away. But I can't predict.
• talkingtab 6y ago
  It would make sense if the stock market was a self-organizing Ponzi scheme. Let's say I have $10 million in the stock market. I know that if I sell as the market is going down, I may well encourage other people to sell. The market may plunge and all of my stock will be worthless. If I buy at a crucial time - when the market has paused in the process of dropping, I may well influence the market to go up instead. The greater my fear of a market panic, the more likely I am to try to steer the market - if there is a panic it is game over. The more I have invested in the market, the more influence I can exert. If I know other players are also pursuing the same strategy we can begin to act in unison. This can also be explained by techno-babble, but if it is true that 10% of the population controls 86% of the stock, then anyone would be a fool not to play this way.
  • esoterica 6y ago
    > I know that if I sell as the market is going down, I may well encourage other people to sell. The market may plunge and all of my stock will be worthless. If I buy at a crucial time - when the market has paused in the process of dropping, I may well influence the market to go up instead. That is simply not how the market works. Trying to buy when the market has "paused" is not going to trick the other market participants into thinking that the market has bottomed out and the crash is over and that everyone should start buying again. Volatility in a bear market is normal, and the stock market going up for a couple days in the middle of a crash is not going to convince anyone but the most gullible retail traders that the crash is definitively over. > but if it is true that 10% of the population controls 86% of the stock 10% of the population is 30 million people.
• Sindrome 6y ago
  Eat the rich
• busymom0 6y ago
  Stock market reflects hope of future, not present. Jim Crammer also talks how Stock market is built from big companies like Walmart, Amazon etc which don't get negatively impacted by COVID (they do even better). It's the small businesses (which aren't public on stock market) which are suffering: https://www.youtube.com/watch?v=9G5I6oikAYA https://www.youtube.com/watch?v=9G5I6oikAYA
  • anm89 6y ago
    Then why do prices swing wildly on earnings days? This is not an invalid statement but its a very incomplete understanding of markets.
• fullito 6y ago
  Why is that hard to understand? What else should i suddenly do with my money if i invested it in the stock market? I mean srsly getting it out now to do nothing with it means losing money. If i invest long termish, even if corona hits hard, after it hit, live continues and the economy will recover. We lost 2 years of stock market growth anyway. Thats a shit tone of money. As bad as it sounds, the worst two things from corona are: people dying and business not conducted. People dying also means reduced cost for the economy due to less old people (more working people ratio) and less sick peole/health insurance costs after. The other thing might mean that we clear out unhealthy businesses. But who pays the bill? People who had money before probably. All others hit the base line of social security. Lets see how it plays out. To be honest, i don't have a better idea and as i don't need to get it out now, i will keep it where it is. And rallying it is because live goes on.
  • anm89 6y ago
    You are thinking like a small individual investor. Many larger players are highly leveraged. They don't always have the option to ride the lows. These players have wildly more influence over market prices than mom and pop investors who can ride crashes.
    • emerongi 6y ago
      I thought it was the other way round. Mom and pop pull money out because they need to use it when the economy turns bad, big players can ride the wave because their everyday lives really aren't affected.
      • anm89 6y ago
        It can go both ways but institutional traders have access to huge leverage and can also handle large write downs. They take margin calls that are enormous by mom and pop standards all the time.
    • fullito 6y ago
      Is that then good for me that i can wait it out? And what is with all those pension fonts etc.?
• afpx 6y ago
  Investors assume that the public will bail out failing industries.
• mirimir 6y ago
  > Gains in U.S. stocks accelerated Friday after April’s nonfarm payrolls report showed unemployment rose to 14.7%, the highest level on record. Aren't stock prices generally proportional to unemployment level? Maybe because low unemployment pushes wages up?
• xivzgrev 6y ago
  Because the economy isn’t “bad” like in previous recessions. Generally lots of people are unemployed because of government mandates not to work, not because businesses are experiencing lack of demand. When the shelter orders are lifted, much of the unemployed will be able to resume work. People will be going to the mall, travel, out to eat, etc. Now it’s not going to perfect - some businesses may find demand doesn’t immediately pick back up (or at all), and then real lay offs happen. IMHO this is why we find the stock market near previous highs but not quite there.
• betterworldb 6y ago
  Is there a way to read this without paying?
• x3blah 6y ago
  "Goldman Sachs Group Inc. analysts have been tracking varied measures such as gas demand, Starbucks mobile application downloads and traffic in restaurants as measured on the reservation website OpenTable for signs of a recovery." OpenTable data https://docs.google.com/spreadsheets/d/e/2PACX-1vRbPuAyJy74UmbF6kLXFGXDk2eX3N6zvRLzxPamG8FAA3E-SVqMOMSIht-eYEF_4qrNGOJuPbDjTsPD/pubhtml?fbclid=IwAR2ku0phyu1HpFeKTj2vTfoPvnDwx7gJUFOA635STJQhaZ7DHMqDqTa3HQI# https://docs.google.com/spreadsheets/d/e/2PACX-1vRbPuAyJy74U...
• peter303 6y ago
  Basic monetary explanation: The current 'rescue' has pumped $6 trillion via CARES and Fed asset purchase. Some of it is competing for the only thing going up- not goods, not wages, not bonds, but stocks.
• deleted 6y ago
  [deleted]
• watertom 6y ago
  Because the stock market has nothing to do with the economy. It’s a tax reduction for the rich, and a way to “manufacture” money for the well connected, like politicians and their friends and families.
• williesleg 6y ago
  Because it's the Wall Street Journal fake news!
• unusual_whales 6y ago
  A lot of this also seems to be insider knowledge. It is said that QE is the greatest wealth transfer tool on the earth. I truly believe that. If you look at who the stimulus is meant to support, it isn't the mom/pop shops (which incidentally is good for the stock market as the companies get bigger). I tried to capture this unusual insider activity here: https://twitter.com/unusual_whales https://twitter.com/unusual_whales If you look at the companies that are "growing" or have calls, it is always those supported by the government. Take note!
• zelly 6y ago
  The market is pricing in the Fed buying equities if it gets too bad. The market consensus is that there could be 30% unemployment but ATH prices in the S&P 500 because of the Fed buying. If the Fed refuses to do this, then reality will set in for the market.
• fifticon 6y ago
  My uninformed guess is that the unemployment is a contributing factor. Consider the act of huge workforce reductions just before a shareholder earnings call. The math shows huge revenue (built with the workforce you had until recently), offset by greatly reduced salary costs. The recent enormous layoffs, possibly has such a "heating with the wall paneling" effect. If so, it's a sort of dead-cat-bounce, given that it's hugely unsustainable - you'll soon be out of wall paneling.
• brianchu 6y ago
  The explanation is very simple. The pandemic is not nearly as bad as people thought it would be in March. Models were predicting hundreds of thousands of deaths in the USA over the next few months, with lockdown. Many people were predicting hospitals would be widely overrun in New York City, parts of California, etc (again, with lockdown). These models and predictions, of course, were wrong. Printing money and stimulus should have been expected (given the government's response in 2008) and therefore priced in, at least in theory. If we actually had massive numbers of bodies piling up outside hospitals in all major US cities, no amount of money printing would have propped up the markets.
  • will_walker 6y ago
    We are going to cross that 100k death toll by June, and there will be an acceleration in 2-4 weeks as we see the effects of reopening efforts on transmission rates. [1] Brooklyn funeral homes have trailers full of bodies waiting for burial. Just because it’s not happening where you can see it doesn’t mean it’s not happening. [2] 1. https://projects.fivethirtyeight.com/covid-forecasts/?ex_cid=rrpromo https://projects.fivethirtyeight.com/covid-forecasts/?ex_cid... 2. https://www.google.com/amp/s/www.nytimes.com/2020/04/29/nyregion/bodies-brooklyn-funeral-home-coronavirus.amp.html https://www.google.com/amp/s/www.nytimes.com/2020/04/29/nyre...
    • brianchu 6y ago
      Some models were predicting multiple hundreds of thousands of deaths, with lockdown. The Imperial College model was predicting 1 million deaths, with lockdown. I completely agree cases will rise as places begin reopening. But whatever the outcome it will be with reopening - still better than what the market expected in March. Yes, NYC was the only place in America where the system was close to overrun and some hospitals actually were overrun, I'm not disputing that.
• chewz 6y ago
  It is not stock market rallying - it is your dollars rapidly loosing value..
• darepublic 6y ago
  If the fed backs the market up to the point of total civilization collapse then makes sense to keep backing the market since if it gets to the point market fails money will lose its value anyway??
• ageofwant 6y ago
  90% of all stock trading the last 19 years was company buybacks. The fed has one job: liquidity. Mark Blyth's various commentries the last few weeks are very enlightening.
• socrates1998 6y ago
  I think for the most part, it's this idea that things will go back to normal soon. And there wasn't anything structurally wrong with the economy like it was in 2008. Right now, the hardest hit people are mainly people with zero stocks (bartenders rarely have a decent portfolios). The Fed has made bonds and savings almost worthless with all the money being pumped into the economy, so why not try to get in on this opportunity? I think this all fools gold. We are going to hit 20% unemployment and earnings are going to take a massive hit. The stock market might not tank, but it also could break even. At the point that people think the stock market isn't worth the risk, that's when you will get another big sell off. In a weird way, both shorting stocks and going long stocks are both very risky positions right now.
• WilliamKen64 6y ago
  Hi, From Jacksonville fl, USA. I am announcing this amazing testimonial about how the blank ATM card experience changed my poverty life. I was very poor and couldn't found an available job, until one faithful day, i was on the internet searching for solution, so luckily i read about the blank ATM card exercise and how it has made people rich. I contacted the email address i found the testimonial of some clients and here i am today, all thanks to team hackers blank ATM card services world wide. All you need to do is send a message to the email address provided: Whats App him: +1(786)652-9936 Email: blankcardsmaster@yahoo.com https://blankcardsmaster.wixsite.com/blankcards/contact https://blankcardsmaster.wixsite.com/blankcards/contact #Thank you everyone for this wonderful time to share with you.