Why is the stock market rallying when the economy is so bad? • Hacker News Board

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

#411

Post by kgwgk » Sun, May 10, 2020, 10:42 PM UTC

paulpauper wrote: post #375

kgwgk wrote: post #247

Earlier quoted context omitted.

Corporate earnings have been flat for over a year, so they don't really explain why the S&P 500 still went up 15% from the 2018 highs. And now expectations are down substantially and even for 2021 are below 2018 levels.

if a $100 billion dollar company generates $10 billion of profit annually, then that is 10% returned to shareholders every year even if there is no earnings growth.

Sure, with no earnings growth and no price increase shareholders would be richer due to the cash returned via dividends.

But that doesn't explain why the price you pay for $X in earnings is higher in one case than in the other. (Retained earnings could explain a minimal part of the increase.)

There is no reason for that $100bn company to be a $110bn company next year if it has returned the $10bn it earned to shareholders and it's still going to earn $10bn.

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

#412

Post by codexon » Sun, May 10, 2020, 10:42 PM UTC

MattGaiser wrote: post #56

cft wrote: post #12

This 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

We are still waiting for the surge of inflation you inflation hawks complained about in 2008 when this was all last done... https://www.usinflationcalculator.com/inflation/current-infl...

All the inflation went into healthcare, education, housing, stock market, all things conveniently not measured or heavily weighted by the PCE.

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

#413

Post by ccffpphh » Sun, May 10, 2020, 10:43 PM UTC

coliveira wrote: post #394

lotsofpulp wrote: post #205

Earlier quoted context omitted.

Guillotines might have worked well in the past, but with modern weapons and technology, you can use a much smaller portion of the population to suppress a much larger portion of the population. You can pay 10% of the population well enough that they support the top 0.01%, and the top 10% can pay the next 20% to 30% well enough or provide a sufficient probability to move up (or illusion) that they are incentivized to…

Missiles are similar weapons may be useful against other countries (remember Vietnam, however), but they will not stop revolts inside the country itself. What would the US government do if 80% of the city of New York decided to turn against the government? Throw an atomic bomb in the city? Their time may be running out.

What would New York even do? People here don't believe in firearms, let alone violence. In reality the city would starve within a couple weeks due to siege/blockades if it really united and tried to revolt.

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

#414

Post by ThrustVectoring » Sun, May 10, 2020, 10:43 PM UTC

dcolkitt wrote: post #145

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…

Exactly. Here's a very intuitive way to think about it. Disney World's revenue has currently fallen by 100% this period. How much do you think the fair market value of Disney World should decline by? Clearly the answer is much less than 100%. Even if Disney World stays closed for two years, it's clearly a very valuable asset. As an asset it probably has a 50 year effective life, so 2 years of closing represents no mo…

>The biggest risk for corporate assets isn't the direct impact of the lockdown. It's whether the experience leads to any permanent changes in people's behavior.

Note that this is a risk for specific corporate assets, but less so for corporate assets as a whole. The things people are shifting their spending to generate offsetting profits in other companies; if we're buying electronics instead of airfare, this is good for electronics manufacturers and distributors and bad for airlines. If we own both, then this shift matters a lot less.

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

#415

Post by foob4r » Sun, May 10, 2020, 10:44 PM UTC

koheripbal wrote: post #136

Dumblydorr wrote: post #44

Earlier quoted context omitted.

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.

Over an infinite period of time, sure.

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

#416

Post by kgwgk » Sun, May 10, 2020, 10:44 PM UTC

californical wrote: post #304

kgwgk wrote: post #228

Earlier quoted context omitted.

You are not forced to hold onto non-dividend paying stocks, you can sell them gradually to create "dividends" for yourself. As a first order approximation, buying a $100 stock that gives you a $5 dividend but stays at $100 is not different from buying a stock that doesn't distribute a dividend but appreciates 5% every year.

Thanks for the response! I guess my issue is that there's no actual value in owning non-dividend shares for any amount of time. So I can sell the stock to someone else, but what are they paying me for? The opportunity for the value to increase more? Why is someone interested in paying me more than I paid? I feel like there's never any real money that's made back by owning those shares. What's the goal? Removed from t…

Even non-dividend-distributing companies can give real cash to shareholders in exchange for those paper share certificates by buying back shares. But it's true that for some companies it's quite difficult to justify valuations.

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

#417

Post by 2019-nCoV » Sun, May 10, 2020, 10:49 PM UTC

Consultant32452 wrote: post #406

2019-nCoV wrote: post #391

Earlier quoted context omitted.

42% of children born to parents in the bottom fifth of the income distribution ("quintile") remain in the bottom, while 39% born to parents in the top fifth remain at the top.

Okay, more than half of the people at the bottom rise up out of it. And less than half of the people at the top stay at the top. What are you hoping for? Please be as specific as possible. And what does this have to do with whether a lot of effort and a sense of opportunity is available to the common person?

Most every other developed nation has greater social mobility than the US [1]. Why can't the US reach Scandinavian levels of social mobility?

[1] https://markets.businessinsider.com/news/stocks/ranked-the-s...

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

#418

Post by talkingtab » Sun, May 10, 2020, 10:50 PM UTC

It would make sense if the stock market was a self-organizing Ponzi scheme. Let's say I have $10 million in the stock market. I know that if I sell as the market is going down, I may well encourage other people to sell. The market may plunge and all of my stock will be worthless. If I buy at a crucial time - when the market has paused in the process of dropping, I may well influence the market to go up instead.

The greater my fear of a market panic, the more likely I am to try to steer the market - if there is a panic it is game over. The more I have invested in the market, the more influence I can exert. If I know other players are also pursuing the same strategy we can begin to act in unison.

This can also be explained by techno-babble, but if it is true that 10% of the population controls 86% of the stock, then anyone would be a fool not to play this way.

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

#419

Post by ThrustVectoring » Sun, May 10, 2020, 10:52 PM UTC

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.

"What is the fair market value of a specific company" is only part of how stocks as a whole get valued. Roughly speaking, investors have a roughly constant fraction of their money invested in stocks. As more money enters their pockets - via personal earnings, corporate profits, monetary and fiscal policy, etc - investors have to figure out where to park it.

What happened in 2008 is that investors suddenly realized that a hell of a lot of companies were taking way more risk than they thought, and decided to cut their stock allocation to avoid those risks.

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

#420

Post by enraged_camel » Sun, May 10, 2020, 10:54 PM UTC

empath75 wrote: post #364

bo1024 wrote: post #359

Earlier quoted context omitted.

Why? A lot of the value of a stock is ability to resell at a high price later. If everyone (including U.S. Fed and gov) agrees to continue to push prices high for the forseeable future, then it seems like prices can lose connection to e.g. ownership in a company.

That’s the definition of a bubble.

Yeah, it made me laugh that the OP stated it in such a matter-of-fact fashion, as if it’s normal or good.