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> The stock market has no bearing on the economy right now. nor should you expect it to. people buy securities when they expect them to be worth more when they

> The stock market has no bearing on the economy right now. nor should you expect it to. people buy securities when they expect them to be worth more when they sell (or are forced to sell) them. they sell securities when they no longer believe that. either way, it doesn't have much to do with what is happening this instant. right now the market is saying that, in aggregate, people expect the economy to bounce back before they are forced to liquidate their holdings.

an_opabinia 6y ago
> people buy securities when they expect them to be worth more when they sell (or are forced to sell) them. they sell securities when they no longer believe that. If anything, the shocking over performance of retail investors has nothing to do with that trite characterization. It could be as simple as options having a built-in exit strategy, which is actually what retail lacked. People were selling and buying at the wrong times, and now they aren’t, because the thing they are trading forces them to exit at a “good time.” With an unemotional exit strategy, retail traders are taking greater risk for greater reward and obtained it. Is this good for the economy? Would you rather have people sit on their stock portfolios until they die, passing millions of dollars tax free to their heirs, who don’t spend it either or spend it on overpriced housing? Or would you rather people take profits (and losses - to other winners) every two weeks, occasionally, you know, buying a variety of somethings?
mywittyname 6y ago
Buy-and-hold investors aren't usually spooked until bankruptcies start rolling in. Think about how long the GFC was brewing before the stock market took a hit. You could see the problems for years, but it wasn't until the fall of Lehman, AIG, etc that people really began to panic sell. Bankruptcy is the one situation where buy-and-hold doesn't work. So until we start seeing large bankruptcies, I doubt the stock market will really panic. And let's be honest, the likelihood of any of the top 10 companies in the S&P 500 going bankrupt right now is nil. And that's >25% of the total value of the index right now.
- leetcrew 6y ago
  sure, I'm not saying the market is a perfect indicator of the economy's trajectory. I'm pushing back on the idea that it's completely disconnected from the economy, or at least that pointing to current unemployment figures and an S&P all time high is not enough to prove the point.
  - mywittyname 6y ago
    The S&P 500 is absolutely disconnected from "the economy." Out of the top 5 stocks on the S&P, 4 are tech companies employing fewer than 1 million Americans combined. Expanding that list to the top 10 companies, P&G and Visa are kind of representative of the economy, but they are highly consumer focused. Leaving Berkshire Hathaway as the sole stock in the top 10 that is representative of the American economy as a whole by virtue of doing business in such a diverse collection of markets and owning many small, private businesses. Another problem with the S&P500 is that it is capitalization-weighted. So even if it contains a diverse set of companies, technology stocks are over-represented because of how well they scale. Walmart has to do a hell of a lot more work per dollar of profits than Apple does.

an_opabinia 6y ago

> people buy securities when they expect them to be worth more when they sell (or are forced to sell) them. they sell securities when they no longer believe that. If anything, the shocking over performance of retail investors has nothing to do with that trite characterization. It could be as simple as options having a built-in exit strategy, which is actually what retail lacked. People were selling and buying at the wrong times, and now they aren’t, because the thing they are trading forces them to exit at a “good time.” With an unemotional exit strategy, retail traders are taking greater risk for greater reward and obtained it. Is this good for the economy? Would you rather have people sit on their stock portfolios until they die, passing millions of dollars tax free to their heirs, who don’t spend it either or spend it on overpriced housing? Or would you rather people take profits (and losses - to other winners) every two weeks, occasionally, you know, buying a variety of somethings?

mywittyname 6y ago

Buy-and-hold investors aren't usually spooked until bankruptcies start rolling in. Think about how long the GFC was brewing before the stock market took a hit. You could see the problems for years, but it wasn't until the fall of Lehman, AIG, etc that people really began to panic sell. Bankruptcy is the one situation where buy-and-hold doesn't work. So until we start seeing large bankruptcies, I doubt the stock market will really panic. And let's be honest, the likelihood of any of the top 10 companies in the S&P 500 going bankrupt right now is nil. And that's >25% of the total value of the index right now.

leetcrew 6y ago
sure, I'm not saying the market is a perfect indicator of the economy's trajectory. I'm pushing back on the idea that it's completely disconnected from the economy, or at least that pointing to current unemployment figures and an S&P all time high is not enough to prove the point.
- mywittyname 6y ago
  The S&P 500 is absolutely disconnected from "the economy." Out of the top 5 stocks on the S&P, 4 are tech companies employing fewer than 1 million Americans combined. Expanding that list to the top 10 companies, P&G and Visa are kind of representative of the economy, but they are highly consumer focused. Leaving Berkshire Hathaway as the sole stock in the top 10 that is representative of the American economy as a whole by virtue of doing business in such a diverse collection of markets and owning many small, private businesses. Another problem with the S&P500 is that it is capitalization-weighted. So even if it contains a diverse set of companies, technology stocks are over-represented because of how well they scale. Walmart has to do a hell of a lot more work per dollar of profits than Apple does.