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?
Why is the stock market rallying when the economy is so bad?
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Re: Why is the stock market rallying when the economy is so bad?
#12This 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
Re: Why is the stock market rallying when the economy is so bad?
#13> 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…
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.
Re: Why is the stock market rallying when the economy is so bad?
#14https://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…
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.
Re: Why is the stock market rallying when the economy is so bad?
#15Rallying 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?
Look at the Nasdaq. It's come back much faster than the Dow.
Re: Why is the stock market rallying when the economy is so bad?
#16Could 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.
The dollar plumbing relative to what? Not other currencies by the looks of it.
Re: Why is the stock market rallying when the economy is so bad?
#17Could 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.
The dollar plumbing relative to what? Not other currencies by the looks of it.
All other countries have the same need for printing money, so the value compared to other currencies should remain stable.
Re: Why is the stock market rallying when the economy is so bad?
#18I 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?
Re: Why is the stock market rallying when the economy is so bad?
#19https://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…
> 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.
Re: Why is the stock market rallying when the economy is so bad?
#20This 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
There is much bigger risk of deflation during a depression. Do you really think there will be wage inflation when there is 20% unemployment?