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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?

#191

Post by 6gvONxR4sf7o »

JMTQp8lwXL wrote: post #148
clomond wrote: post #132

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…

Does this also mean that the market fundamentally thought, during the Global Financial Crisis, that the sum of the total future discounted cash flows permanently fell significantly? I'd like to see how this concept would explain 2008. If it can, it further strengthens the thesis.

Partly, that's where the "discounted" part comes in. The further out a profit, the less it factors into today's price.

The other part, and this took me forever to realize, is how much "expectation" matters, in the sense of information. If on Monday, I flip a fair coin to decide whether or not to dissolve my business, and then tell you what the coin landed on on Wednesday, then the amount you'll pay for a share in my company on Tuesday is going to be incredibly different from what you'll pay Thursday. Noting for the business changed between those days. Only your perception changed, but it's insanely important. That's a reason swings can happen so near-instantly. The company's finances don't change that quickly, but the information available to investors does change that quickly (like on an earnings call, or after the release of an investigative report).

So in 2008, the near future was weighted heavily and not rosy ("intrinsic" values go down), while investors realized they'd been wrong about their expectations (market prices go down further).

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

#192

Post by sacred_numbers »

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".

That may be true, but the evidence mostly is pointing in the direction of undercounting COVID deaths. In northern Italy the official death count was less than half of "excess deaths", with the worst-hit areas having the most excess deaths. Certainly some of the excess deaths are due to people avoiding hospitals, or higher stress levels, but a lot are due to COVID deaths at home, or undiagnosed COVID deaths. Also, we still don't really understand this disease enough to know what effects it has on the body. There have been reports of people with COVID having strokes at much higher rates than would be expected for the same age demographic. It will be hard to tell which complications were coincidence and which were caused by COVID until later on when we have more data.

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

#193

Post by kitotik »

yborg wrote: post #89
kitotik wrote: post #39

Earlier quoted context omitted.

A large portion of the stimulus is going to publicly traded companies, so that would have the effect of propping up stocks that may otherwise trend towards zero.

There are more or less no limits on the stimulus money, so corporations that have issued debt to buy back shares can use it to retire that debt and then issue even more debt in the current hyper-low rate environment. It's essentially a way for companies to transfer the money into the hands of their executive management.

I had a very hard time understanding why this setup was so widely accepted during the last corporate welfare program in 2008/2009 when the amount was in the $500B range.

I’m now at a complete loss as to why there isn’t more of an outcry when it’s in the $3T range.

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

#194

Post by elros »

mobilefriendly wrote: post #91
kitotik wrote: post #62

Earlier quoted context omitted.

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.

Well, you can't live inside stock certificates :-)

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

#195

Post by jl2718 »

vadym909 wrote: post #31
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…

I'm surprised the average Americans (the 90%) don't get that they are providing insurance to the 86% wealth of the top 10%, but get almost none of the gains.

This is not at all the situation. Reality is the 1% (wealth) making the 10% (income) pay for the 90% (both) to support their investments with consumption and debt.

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

#196

Post by vertak »

jonathanpeterwu wrote: post #22

Worth reading all chapters that are in here, but chapter 3 gets at the meat of where we're heading. We're at the end of a long credit cycle post WWII, dislocation of the dollar from the gold standard, to bretton woods, to now QE printing of money being loaned to the government by the fed. Market reflects the cash flow available being printed by the FED to keep the markets up. https://www.principles.com/the-changing-w…

Thank you for sharing this! I’m always grateful to read some of Dalio’s thoughts on the future.

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

#197

Post by 6gvONxR4sf7o »

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…

Is that 86% figure a portion of the public market, or of the entire market?

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

#199

Post by encoderer »

paulpauper wrote: post #183

An increasingly large % of the economy is concentrated in a handful of highly profitable, efficient tech companies and multinationals such as Walmart, Microsoft, Amazon, Google, and Facebook. Stimulus $ is pure bottom line growth for these huge companies as smaller businesses close. Also, huge growth in business to business commerce, bypassing consumer spending altogether. Facebook and Google selling ad space to othe…

Yes, all this, plus most of those out of work today are doing fine because of the stimulus and additional $2400 a month in unemployment from the federal govt.

I know family members who are making more at home now than they do when they are working.

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

#200

Post by seibelj »

lokl wrote: post #143

Several comments here about alternatives to stock, the poor returns of bonds, and cash being eaten by inflation. If you've been thinking about this and are a U.S. investor, read about I Bonds. Or, if you aren't worried about inflation and are investing for 20+ years from now, don't forget about EE Bonds.

IBonds are linked to the government-approved CPI and the basket no longer represents “true” inflation which, in my opinion, should include the increasing cost of housing, education, medical insurance, etc. rather than cheap stuff outsourced to foreign countries to manufacture.
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