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U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

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Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#11

Post by bobobob420 »

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

?? What is the purpose in comparing metrics about our economy recessing based on production of goods vs a market for pieces of company ownership. They are not and never have been the same and there is no law they must follow the same trend

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#12

Post by hobbescotch »

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

AFAIK stocks are up due to the announcements that the lock downs will be ending. However, the surge seems rather short sighted: you can coax stores into reopening, but you can’t force people to go out and shop in them like they used to.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#13

Post by londons_explore »

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

The market is denominated in dollars.

If the dollar gets less valuable due to the government printing cash (or buying bonds or issuing loans they are expected to later write off), then things denominated in dollars increase, even if the real value remains unchanged.

It's hard to tell if the dollar is weakening, because most other currencies are in the exact same position.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#14

Post by scottLobster »

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

Best explanation I've found: https://www.youtube.com/watch?v=0ECqDaPjjV0

Can't post this enough these days. TLDR is that the stock market is forward looking. It goes up or down based on whether conditions are better or worse than EXPECTED. If reality is in line with expectations then nothing happens. If it's better than expected stocks go up, if it's worse than expected stocks go down. The current shitty economy has already been priced in as far as can be known.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#15

Post by GhostVII »

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

The S&P crashed 35% before going up again, and is still significantly lower than it's high a few months ago. So I think it is more that the virus is not as bad as we thought a month ago (which seems to be true - projections in the US and Canada have gotten significantly better over the last month). The market does not go up or down when we get bad or good news, it goes up or down when we get news that is better or worse than expected.

Also, the S&P 500 is made up of mostly large companies, many of which could benefit long term from the virus. Sure in the short term there will be a revenue hit, but in the long term if their smaller competitors can't survive that hit and they can, they will become more dominant in the future. As far as I know, small business indexes have not recovered much.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#16

Post by MattGaiser »

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

Also, massive stimulus both monetary and fiscal.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#17

Post by hn_throwaway_99 »

iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

3 things:

1. People keep saying about the market being up recently, but skip the part about it still being down about 10% since the start of the year.

2. S&P is heavily weighted towards the strongest companies. Amazon, Apple, Facebook, Microsoft and Google account for 20% of S&P market cap. Most of those companies have been helped by the pandemic, or at least not hurt nearly as bad as smaller companies.

3. The market is always very forward looking. It is essentially betting that things are as bad as they'll get. I don't know if I personally necessarily agree, but if you look at countries starting to open up it's not an unreasonable bet.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#18

Post by harryh »

londons_explore wrote: post #6

Thats 4.8% annualized. The real figure is 1.17% for 3 months. It's quite impressively small really, considering everyone is sitting at home, and many aren't working at all.

Keep in mind that this is a Q1 total and the bulk of Q1 was unaffected by coronavirus.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#19

Post by brenden2 »

arcticbull wrote: post #5
brenden2 wrote: post #2

Good news for stocks, it means the Fed will keep printing trillions of dollars.

In this market good news is neutral and bad news is good.

There's a mistaken belief on WSB and elsewhere that bad news should make stocks go down. Stocks go up when the market thinks they'll be more valuable in the future, that's all there is to it. The cash will flow into the assets that provide the greatest returns, and right now that's stocks.

Since treasuries provide almost no return, and corporate bonds are at high risk of default, the money will move into stocks because 1) the US government is hellbent on making sure big companies don't fail and 2) the Federal Reserve is prepared to buy unlimited treasuries and mortgage backed securities at any price.

Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

#20

Post by harryh »

freeone3000 wrote: post #9
iambateman wrote: post #4

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

Stock market is essentially a sentiment graph. There's no need for it to be linked to any underlying useful metric - it's entirely likely people are investing in stocks simply because all other investments are worse.

This is true in the short run, but not in the long run.
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