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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?

#91

Post by mobilefriendly »

kitotik wrote: post #62
Hydraulix989 wrote: post #50

Earlier quoted context omitted.

Why are stocks inaccessible to so many Americans? There are fractional shares, and you do not have to be an accredited investor.

Because many Americans can’t even pay their current bills or save literally a single dollar. So fractional shares are irrelevant unless they are free.

There's a gap between those folks, though, and the median household which earns $63,000 a year but has almost no savings or stock holdings. The median household wealth is $100,000 and that's almost all housing.

Re: Why is the stock market rallying when the economy is so bad?

#92

Post by catalogia »

Dumblydorr wrote: post #44
toohotatopic wrote: post #14

Earlier quoted context omitted.

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…

How do you know there will be a time after Corona? In all likelihood, it is here to stay like influenza and rhinovirus and other respiratory illnesses. The only way we recover the economy is by gaining herd immunity such that 25-50k yearly die, not 200k. That comes with vaccine and with wide scale exposure, which I'd wager is by 2021 summer. But even then, old folks will still die by the thousands each year due to co…

Even in the unlikely scenario where resistance/immunity/vaccines for corona never develop and it never goes away, there will come a point where people consider the death toll acceptable losses and the lockdowns will be lifted. E.g. the current attitude towards car accidents and influenza deaths. (And yes, I know corona is worse than either. Eventually, should corona truly become the 'new normal', that won't matter.)

Re: Why is the stock market rallying when the economy is so bad?

#93

Post by filoleg »

cgb223 wrote: post #85
xtiansimon wrote: post #69

Earlier quoted context omitted.

> Faith in humanity: buy stocks. No faith in humanity: buy gold. Speaking to a friend who bought stocks recently, they said, "I'm bullish on America." I might say if you are the opposite of bullish, then buy gold. And if you have no faith in humanity, buy a survivalist bunker.

> And if you have no faith in humanity, buy a survivalist bunker. What’s the rent on a bunker these days? If it’s cheaper than an apartment in SF I might go in on it

I bet you can build your own luxury bunker somewhere in midwest for way less than a dinky studio condo would cost ya in SF. The real issue is the cost of land and zoning laws, not the actual entity built on that land (obvious exceptions apply, e.g., we are talking about buildings that fit a few families tops, obviously not something like a highrise with over a hundred of units).

Re: Why is the stock market rallying when the economy is so bad?

#94

Post by grecy »

Hydraulix989 wrote: post #50
magicsmoke wrote: post #9

> 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…

Why are stocks inaccessible to so many Americans? There are fractional shares, and you do not have to be an accredited investor.

37% of Americans struggle with hunger [1] and 57% of Americans have less than $1000 in savings. [2]

Would you be buying stocks if you didn't have enough to eat?

[1] https://www.feedingamerica.org/hunger-in-america/facts

[2] https://finance.yahoo.com/news/58-americans-less-1-000-09000...

EDIT: Apologies, first should be 37 million Americans (NOT 37%)

Re: Why is the stock market rallying when the economy is so bad?

#95

Post by neilwilson »

QuesnayJr wrote: post #7
godelzilla wrote: post #3

Because the stock market is a pyramid scheme propped up with printing money to enforce rampant inequality? Just a guess. https://www.cnbc.com/2020/03/27/the-feds-balance-sheet-just-...

The bulk of the Fed intervention is in the bond market, particularly Treasuries. They are also increasing their intervention in the exchange rate market. If the Fed was trying to pump up the stock market, wouldn't they buy stocks? Instead it looks like to me the Fed is essentially financing the US government's fiscal stimulus.

When you remove income by eliminating Treasuries from circulation, where do you get your income from?

There is a need for a supply of income - from pensions largely. There’s less income in circulation, so the price of income generating assets go up.

Re: Why is the stock market rallying when the economy is so bad?

#96

Post by DesiLurker »

slv77 wrote: post #77
QuesnayJr wrote: post #7

Earlier quoted context omitted.

The bulk of the Fed intervention is in the bond market, particularly Treasuries. They are also increasing their intervention in the exchange rate market. If the Fed was trying to pump up the stock market, wouldn't they buy stocks? Instead it looks like to me the Fed is essentially financing the US government's fiscal stimulus.

The Federal Reserve isn’t the only central bank and some central banks like the BOJ and Swiss Central Banks are buying stocks directly. The Swiss Central Bank is buying US tech stocks heavily.

there is kind of a wink wink nudge nudge understanding that we'll (us fed) do it if there is a dire need for it. just not yet.

Re: Why is the stock market rallying when the economy is so bad?

#97

Post by mikorym »

I currently work in finance, and particularly with dividends, and my opinion as a casual observer is that a prudent investor looks for stability. So, the key is not whether you can find the strongest performance, but that you can predict better how things are changing.

Two months ago everyone was waiting to see what would happen. Now the chips are starting to fall and investors can act accordingly. A simple example is that agriculture is now seen as a more stable investment where, especially in South Africa, it's actually a high risk business. But it is much less risk now in comparison to hospitality.

The only other reason I can see for (perhaps premature) quick rallying is with today's technology you can move around investments much more quickly and hence corrections and speculation are all sped up in terms of their time frames.

Re: Why is the stock market rallying when the economy is so bad?

#98

Post by catalogia »

cgb223 wrote: post #85
xtiansimon wrote: post #69

Earlier quoted context omitted.

> Faith in humanity: buy stocks. No faith in humanity: buy gold. Speaking to a friend who bought stocks recently, they said, "I'm bullish on America." I might say if you are the opposite of bullish, then buy gold. And if you have no faith in humanity, buy a survivalist bunker.

> And if you have no faith in humanity, buy a survivalist bunker. What’s the rent on a bunker these days? If it’s cheaper than an apartment in SF I might go in on it

Unless you think the bombs are going to fall, you'd be better off getting some sort of cabin than a bunker. Living underground has a lot of challenges; it's expensive to build down there and you'll constantly be fighting moisture and mold.

Re: Why is the stock market rallying when the economy is so bad?

#99

Post by kerkeslager »

Because the stock market doesn't represent the economy as most people experience the economy.

First, a lot of companies don't pay out dividends or buy back stock these days, so as time passes, removing their stock price from the price at IPO, their stock price becomes based on perception--not even perception of the reality of the company's value, but perception of the stock's value, which is increasingly just speculation. The stock price might remain tied to the performance of the company in broad strokes, but without regular dividends, sales, or buybacks to tie the stock back to the company, there's nothing to keep it from becoming disproportionate with regards to the company's value.[1]

Second, when companies do pay dividends or buy back stock, it's sometimes done by borrowing money. This actually drives down the value of the company (since now the company has to pay interest on those loans) but drives up the value of the stock--the value of the company and the value of the stock are going in opposite directions.

Third, with the wealth disparity in the US, even if 90% of people pull out of the stock market, it's quite possible for the stock market to go up, because the other 10% own >80% of the stock market. 90% of Americans can divest completely from the stock market, and it could at most lower the stock market by 20%.

This is why stock market metrics are not metrics I care about when determining how the economy is doing.

[1] EDIT: What I mean by "broad strokes" and "disproportionate" here is: Events occur which change the value of the company and the value of the stock, and at least the direction of these price with regards to these events is likely to align. In broad strokes, because people believe the value of the stock is tied to the value of the company, if a "good" event happens, the stock price goes up, and if a "bad" event happens, the stock price goes down. But it's pure speculation how good or how bad these events are. If big bad events are downplayed so they only are represented as slight drops in stock price, and small good events are marketed well so they are overrepresented as big upticks in stock price, then over time this can result in a stock price that goes up, when the value of the company is actually going down.

It's actually even more complicated than that.

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