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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?

#131

Post by nullc »

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.

If your net worth is negative servicing your debts has a better risk adjusted return than investing in stocks unless the interest rates on your debt are extremely low.

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

#132

Post by clomond »

Because a company’s stock price is in theory what the market expects is the sum of the total future discounted cash flows that unit of “equity” generates. [1]

This means that fundamentally, stocks are forward looking several decades and beyond. The economy right now might be bad but if the expectation is that there is a slow and long recovery lasting 2 years, if a company is expected to be operational, profitable and growing in year 3-year 10, those profits are built into the share price.

[1] https://en.m.wikipedia.org/wiki/Valuation_using_discounted_c...

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

#133

Post by xg15 »

kerkeslager wrote: post #99

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 specula…

> 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]

Total stock market noob here, so apologies if this is a dumb question - but I've wondered this for quite some time: There seem to be some extremely well-performing stocks (e.g. Apple, I believe) that don't pay dividends, don't give you voting rights and are not expected to be bought back anytime soon.

How are those stocks connected to the company at all? As an owner, what do you do with those stocks, except selling them to someone else so he can sell them to someone else in turn?

How do they get their value?

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

#135

Post by rsp1984 »

What is most mind-boggling about this recent rally is that basically all the major indices are back to where they were Q2/Q3 of 2019. The Nasdaq is even back to January 2020 levels.

Therefore, the market apparently believes that the environment for stocks today - COVID raging, approaching 20% unemployment, mass bankruptcies, etc - but also central banks creating trillions of USD - is overall as good as it was towards the end of 2019.

Since it is clear that even with the central banks' support economic recovery to late-2019 levels is going to take while, the conclusion can only be that the market anticipates most of the central bank's new money to drive up asset prices again instead of driving the real economy. Sad times.

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

#136

Post by koheripbal »

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…

A vaccine is a near certainty.

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

#137

Post by koheripbal »

grey-area wrote: post #110
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…

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? Thats the theory. In practice stock prices wildly oscillate around expected value (which is a gradual curve up and to the right), with no apparent logic. As shiller points o…

No one makes the claim that short term price changes are rational. They are bets made by humans - very flawed biased humans. ... but if you can be more rational than them, then you can make a lot of money in the long term.

... but I find that most people who complain about irrational markets lack the conviction to bet against it.

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

#138

Post by TheBlight »

rsp1984 wrote: post #135

What is most mind-boggling about this recent rally is that basically all the major indices are back to where they were Q2/Q3 of 2019. The Nasdaq is even back to January 2020 levels. Therefore, the market apparently believes that the environment for stocks today - COVID raging, approaching 20% unemployment, mass bankruptcies, etc - but also central banks creating trillions of USD - is overall as good as it was towards…

The unemployment numbers are deceptive. >80% are furloughed and would have their jobs back as soon as lockdowns end and business picks back up.

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

#139

Post by aazaa »

> Measures by the Fed and U.S. government have underpinned the recent rally across markets. The Fed made it clear it was willing to step in to buoy the economy. Why bet against the market when the central bank is willing to do that?

The Fed has gone far further than just this. The Fed is going to buy as many assets as it takes. Treasuries. Corporate bonds. Junk bonds. Munis. It'll buy the assets directly. It'll buy them through ETFs. The Fed will buy so much with its infinite balance sheet that you're going to get tired of getting rich by front-running the Fed.

The Fed is in the fight of its life. The enemy is dollar strength. Have a look at what the dollar was doing during the depths of the recent crash. It was going much higher.

Here's an investment hypothesis. It could be wrong, but for now, it explains some things.

Should the dollar start climbing above 100 on the DXY index[1], watch for: falling stock markets; falling bond markets; falling commodities and gold markets; falling bitcoin; failing businesses; bank distress. At the same time, watch for the Fed to announce new asset purchase acronyms.

The dollar is the world's currency and the Fed is the world's banker. There's a lot of dollar-denominated debt offshore. When the dollar strengthens, those loans get more expensive to service. To raise cash, foreign holders of stocks and bonds start selling.[2]

The US stock markets have become strongly coupled to the US dollar and simultaneously a predictor of Fed action. Dollar goes up, stocks go down, Fed starts buying assets. Dollar goes down, stocks go up, Fed steps back.

The thing to watch for in the coming months is some kind of dilemma. For example, watch for Fed purchases to lead to a stronger dollar. At that point, the Fed will need to decide which master to serve.

[1] https://www.tradingview.com/symbols/TVC-DXY/

[2] https://www.lynalden.com/global-dollar-short-squeeze/

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

#140

Post by dmode »

steveeq1 wrote: post #108
notabee wrote: post #79

Earlier quoted context omitted.

At the current death rate, we're on track to reach 200k dead by early July. And that's only the deaths that are being counted. There is a substantial increase in overall mortality beyond the year to year average, beyond the confirmed Covid deaths. Considering that this disease is causing pulmonary embolisms, strokes, heart attacks, and other manifestations of out of control clotting even in healthy young people, we m…

There are considerable financial incentives to "fudge the numbers" regarding corona. It's to the point where if someone has a stroke, and he has corona, it will be counted as a "corona death".

This is the theory that has been peddled quite a bit. But doesn’t really add up, since you can easily do a year over year comparison of death numbers. Unless, you suddenly think a significant portion of people are dying of heart attack this year
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