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It's kind of scary that the stock market just hit an all time high, and we're talking about an economic recovery next year. How is the (apparent) disconnect thi

by jb775 6y ago

It's kind of scary that the stock market just hit an all time high, and we're talking about an economic recovery next year. How is the (apparent) disconnect this large?

refurb 6y ago
It’s perfectly aligned. One prevailing theory is that stock prices reflect the value of all future earnings (dividends). So stocks go up, not because a company is making more money today, but because people think it will make even more money in the future (than is already accounted for in today’s price).
- gizmo686 6y ago
  A) Stocks weight near term earnings higher than far future earnings. Both because of the time value of money, and less certainty of future performance. B) Stock prices reflected the future earnings before anyone knew there was going to be a pandemic this year. Even if long term revenue is not effected, stock prices should drop to compensate for the loss in short term revenue
  - refurb 6y ago
    A) Yes, and many stocks dipped then went back up. I guess I’m asking - what stock? Many of the tech companies saw no loss of short term earnings (rather a bump). B) Yes, but future earnings per-pandemic may not match estimated future earnings now. Again, much of the DJIA growth has been driven by tech stocks and their future earning could certainly be better now, with the shift to technology to support WFH.
otabdeveloper4 6y ago
Well, liquidity has to go somewhere. The total amount of money isn't shrinking, and is in fact only growing bigger.
almost_usual 6y ago
Interest rates are low and investors think the Fed will keep bailing them out so it’s all sunshine in the stock market.
ur-whale 6y ago
Stock market isn't at an all time high: it just happens to be valued in a measuring unit (USD) which is hardly worth more than toilet paper.
PeterisP 6y ago
The pandemic has had two impacts on the economy: 1) A decline in consumption across the board due to loss of income and certainty for future; 2) A shift of consumption from the "traditional physical" businesses to virtual or remote or delivery businesses. So the end result is that some niches of economy are harmed very much and some niches of economy are not suffering at all or even having a boom, as the change in habits is a very large impact. And the key aspect that explains this apparent disconnect is that most of the "losers" of economy are not traded in the stock market and most of the "winners" are. If your local cinema goes bankrupt and people switch to Netflix instead, the stock market cares only about the latter. If you buy less stuff in your local corner store and have Amazon deliveries instead, the stock market sees only the Amazon's growth in revenue and ignores the loss of revenue of the non-publicly-traded store. If a company rents less office space and instead invests in various services and software for remote work, the owner of that now-empty commercial space isn't publicly traded but the service/software providers are. Etc.

by jb775 6y ago

It's kind of scary that the stock market just hit an all time high, and we're talking about an economic recovery next year. How is the (apparent) disconnect this large?

refurb 6y ago

It’s perfectly aligned. One prevailing theory is that stock prices reflect the value of all future earnings (dividends). So stocks go up, not because a company is making more money today, but because people think it will make even more money in the future (than is already accounted for in today’s price).

gizmo686 6y ago
A) Stocks weight near term earnings higher than far future earnings. Both because of the time value of money, and less certainty of future performance. B) Stock prices reflected the future earnings before anyone knew there was going to be a pandemic this year. Even if long term revenue is not effected, stock prices should drop to compensate for the loss in short term revenue
- refurb 6y ago
  A) Yes, and many stocks dipped then went back up. I guess I’m asking - what stock? Many of the tech companies saw no loss of short term earnings (rather a bump). B) Yes, but future earnings per-pandemic may not match estimated future earnings now. Again, much of the DJIA growth has been driven by tech stocks and their future earning could certainly be better now, with the shift to technology to support WFH.

otabdeveloper4 6y ago

Well, liquidity has to go somewhere. The total amount of money isn't shrinking, and is in fact only growing bigger.

almost_usual 6y ago

Interest rates are low and investors think the Fed will keep bailing them out so it’s all sunshine in the stock market.

ur-whale 6y ago

Stock market isn't at an all time high: it just happens to be valued in a measuring unit (USD) which is hardly worth more than toilet paper.

PeterisP 6y ago

The pandemic has had two impacts on the economy: 1) A decline in consumption across the board due to loss of income and certainty for future; 2) A shift of consumption from the "traditional physical" businesses to virtual or remote or delivery businesses. So the end result is that some niches of economy are harmed very much and some niches of economy are not suffering at all or even having a boom, as the change in habits is a very large impact. And the key aspect that explains this apparent disconnect is that most of the "losers" of economy are not traded in the stock market and most of the "winners" are. If your local cinema goes bankrupt and people switch to Netflix instead, the stock market cares only about the latter. If you buy less stuff in your local corner store and have Amazon deliveries instead, the stock market sees only the Amazon's growth in revenue and ignores the loss of revenue of the non-publicly-traded store. If a company rents less office space and instead invests in various services and software for remote work, the owner of that now-empty commercial space isn't publicly traded but the service/software providers are. Etc.