I thought we were already in recession, ever since the lockdown.
You were perhaps thinking of a bear market? (Different from a recession)
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
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Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession
#63I 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…
> 1. People keep saying about the market being up recently
So, down 10% from the previous bubble.
> 2. S&P is heavily weighted towards the strongest companies
Good point. Dow is also up almost as much though.
> 3. The market is always very forward looking.
I may be cynical, but I see perhaps 2 to 3 years to regain the jobs we are losing, to see the employment rate return to earlier levels. That's years of depressed spending, and all the other woes of society from high unemployment.
So the market is looking to, what, 2025 or something?
Sorry to pick on you, I still just don't get it.
Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession
#64I 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?
It seems to me that the stock market or GDP are very bad measures for the economy. Maybe we should look more at average purchasing power or something like that which actually has real meaning for the regular citizen. The stock market seems to have turned into its own system that’s detached from the experience of most citizens.
Metrics like that would be a lot more directly meaningful, but the problem is they're impossible to measure. How would you find out what the average purchasing power is on a day-to-day basis?
Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession
#65I 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?
It's a bear rally.
This is the most optimistic market participants (bulls) buying at low prices and creating momentum that others follow.
Waiting for them at higher prices are the pessimists (bears) ready to sell into the rally.
Since there really hasn't been a capitulation, where everyone who would ever sell actually sold, it's likely the bears are still in control. I think some people are mistaking the extreme volatility as capitulation.
Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession
#66I 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?
It is a bet on the continued support of the market by the Fed. If you're interested in preserving purchasing power 15 years from now, would you rather hold dollars or things today? As a value investor, all of my theses were blown out of the water by the unprecedented Fed intervention. It is an environment in which the fundamentals are uncertain. I'm standing pat and waiting for things to make sense before moving agai…
It's studying for the test. It's too common to see a stock index as the stock market as the economy, buy they're all distinct things. Ideally an index _should_ represent that market, but when an economy becomes massively centrally planned by an overreaching fed, it's too easy to prop up those in the index to make the "economy" look strong. Ultimately, purchasing power, people's ability to save, liquidity of assets, etc were pretty bad before this recession. Those are the things we should actually care about - maximizing utility.
It's especially galling because the people pushing for these nigh-Stalinist levels of fed intervention and central planning (look how much support oddly favoured industries like manufacturing and coal get) are also posturing as champions of the Free Market. It's like we can't make any progress because nobody in charge is willing to argue in good faith.
Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession
#67I 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?
It is a bet on the continued support of the market by the Fed. If you're interested in preserving purchasing power 15 years from now, would you rather hold dollars or things today? As a value investor, all of my theses were blown out of the water by the unprecedented Fed intervention. It is an environment in which the fundamentals are uncertain. I'm standing pat and waiting for things to make sense before moving agai…
1. P/e does not mean much without context. Certainly not what the value of a company should be.
2. Fed helped and did what they are supposed to, which is good for everyone.
3. Market is forward looking and it should be, otherwise it would be dumb. In other words corona will pass, it is not the end of the world and if stocks went too deep, potential earnings from stocks within 5-10 years down the line would be huge, so anyone looking at that timeframe would be buying at discount.
High p/e does not mean things are overvalued. It means whoever buys into market estimates strong future potential. Now knowing that you can start to argue whether they are over or under estimating.
Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession
#68Earlier quoted context omitted.
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.
I think all you're saying is that eventually sentiment bends toward economic reality.
Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession
#69I thought we were already in recession, ever since the lockdown.
A recession is a clear defined term : 2 successive quarters of a shrinking economy.
You are wrong.
The NBER Business Cycle Dating committee explains their criteria and explains why "the two quarter rule" the financial press always talks about is not what they use.
https://www.nber.org/cycles/recessions.html
"The committee's procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP and real GDI, but use a range of other indicators as well. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in activity." Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates. The differences between these two sets of estimates were particularly evident in the recessions of 2001 and 2007-2009."
The NBER definition is what gets used in the US by every single government department and academic.
Re: U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession
#70Earlier quoted context omitted.
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…
Better explanation: the fed is buying securities.
This. What you're seeing is the beginning of a massive currency inflation.