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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?

#421

Post by dharma1 »

hannasanarion wrote: post #254
chiefalchemist wrote: post #107

Earlier quoted context omitted.

Because the Fed isn't there all the time. Under normal circumstances, you can't just sit there. Aside from competition, you won't retain quality employees.

But they are now, and that's what matters. When prices fell the first time, it didn't even take a week before the government passed the largest stimulus ever, 80% of which went to corporations. Investors know that the government will do anything to underwrite their risk.

The mandate of the fed is to have maximum employment and price stability. With the impact of social distancing to businesses there was no other alternative to protect employment rather than fed buying securities so the govt has funds for fiscal stimulus to prop up employers that might otherwise go bust (and may still).

The stimulus is intended to protect jobs and livelihoods, not to react to movements in the stock market (even if the current president seems to think so)

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

#422

Post by loblollyboy »

kazen44 wrote: post #171
awinder wrote: post #74

Earlier quoted context omitted.

Man this site is harsh some times, I think there is a lot of depth to this question. It’s easy to look at statistics and say that it’s because of massive wealth imbalances and that is 100% an accurate statement. But from experience / polling there’s also a ton of people who have bad financial hygiene, people who could & should be way more invested and aren’t. So I think there’s also very big educational issues at pla…

Also, what if people don't want to be part of the very system which causes wealth inbalance? or is the stockmarket a "the only way to lose is not to play" kind of deal?

You can do what I did and lose 5% of your net worth on wallstreetbets

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

#423

Post by [deleted] »

zapita wrote: post #358
peterangular wrote: post #238

Earlier quoted context omitted.

> or envision themselves as (somehow!) becoming part of the top 10% I don't disagree with you but want to add some insight to this... My entire life I've been told the lie that if I "just work harder" I can be rich etc. Most of America thinks about themselves in this same way, and it's taken me years of traditional employment + risky startup opportunities to realize that no, success is not guaranteed if you "just wor…

I think you defined perfectly the defining problem of this generation in the US: nepotism. It is the root cause of so many structural problems that we see as unrelated. In particular the failure of the press to do their job and hold the powerful accountable. Not so easy when you went to the same school as them; got an internship thanks to them; were at a NYC roof party with them last week. Positions once available to…

[deleted]

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

#424

Post by klenwell »

nkurz wrote: post #2

https://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…

Thanks for the summary. This is a question that had piqued my curiosity. Based on past bubbles, I cynically assumed it was mostly delusion ("market can stay irrational longer than you can stay solvent").

Paul Krugman provided his own answer a few days ago in a Twitter thread:

Two lessons here. First, the Fed saved the world economy from total disaster (again). Second, the stock rebound is not a sign that everything will soon be OK. It's not telling us that the economy is great, but rather that investment opportunities other than stocks are lousy.

https://twitter.com/paulkrugman/status/1256208478282158085

This echoes @magicsmoke's explanation at the top of this thread and helped change my mind a bit. Like you, I still expect a bloodbath eventually.

Among this article's explanation, #1-3 sound like folly to me. And I'm guessing 4 & 5 can only go so far when 1/3 of the economy is out of order. It feels like a massive (long and slow) hurricane has just made landfall and there's still too much rain and wind to see how much damage has actually been done yet. But investors seem to want to pretend when the storm clears, the economy will somehow still be standing there unscathed and everyone will be able to just head back to work.

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

#426

Post by Glyptodon »

JKCalhoun wrote: post #128
bb2018 wrote: post #13

Earlier quoted context omitted.

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.

I feel like there is a decade of guillotines in the future that they are either not seeing or are looking way past. But then I've always been cynical about the growing divide between the uber-wealthy and the other 99% of this country.

Yeah, people always say "Why should I pay more in taxes? It's not fair, they should be flat and the same for everybody!" and I'm always like "Do you have just as much to lose in a French Revolution scenario? You should be happy to pay more if it leads to more social stability."

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

#427

Post by treyfitty »

ethbro wrote: post #60
nkurz wrote: post #2

https://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…

My $0.02, we're going to see bifurcation that the market hasn't fully priced in. Not a good time to be in broad ETFs. Highly likely: Coronavirus is going to be circulating until the end of 2021 (based on transmissibility & vaccine timeline). We'll have better therapeutics to blunt the symptoms. But steps required to (intermittently) re-suppress transmission (NYC is ~20% exposed? So at minimum 1-2 more spike repeats)…

Can you define what this bifurcation in ETFs look like? I can’t grasp how this situation will crumble the ETF market- aren’t ETFs in theory safer than stocks?

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

#428

Post by listenallyall »

erik_seaberg wrote: post #396
ahoy wrote: post #390

Earlier quoted context omitted.

You greatly overestimate how many americans have pension plans and underestimate how rich the richest americans are

It's mostly the latter. Looks like 32% have 401(k) plans and 13% have pensions. They may not have a big share of the total market cap, but a stock market crash would blow up a lot of retirement planning.

>> a stock market crash would blow up a lot of retirement planning

The low interest rates we've experienced over the last decade, which have only gotten lower as of late, have actually blown up retirement plans.

Used to be, $500,000 saved at 8% meant you could retire off the $40k interest + social security. It also meant that growing a savings account into $500,000 was not out of reach, even on a modest income. This was the plan many people in the 60's, 70's, 80's worked towards.

Now, getting to $500k in savings is much more difficult as compound interest is so much lower. And if you happened to get there, you'd earn a whopping $5000, maybe less, in interest per year.

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

#429

Post by treyfitty »

Jommi wrote: post #298
schaefer wrote: post #230

Earlier quoted context omitted.

i qualify and filled for unemployment benefits over a month ago after a several hundred employee layoff at my company. I still have not seen a penny. Many others I've talked to in my state are in exactly the same position. in Nevada, the department of employment has dropped business hours to just three days a week. there are no queues when you call in. there is no "your call will be served in the order this call was…

That shouldn't mean you will never see a penny. AFAIK you will be prorated on the payments for sure, but of course if it's been over a month seems like there is a bottleneck in the governmental process for the benefit. That doesn't disprove what the OP was saying.

Prorated isn’t the correct term here. It’s retroactively paid.

And that assertion is false. The $600 per week is only until July 31.

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

#430

Post by pgwhalen »

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…

Stock gives you a legal claim to a portion of the assets of a company, which as you point out, manifests itself quite clearly during a liquidation event like a dividend payment or an acquisition by some other entity. But tt shouldn't bother you that plans for such a liquidation event might not be clear when you buy the stock. What matters to you (and future investors that might buy your shares from you) is that if such an event happens, you have to be compensated as a result. That's why your shares retain value.

To take a more specific example, Google has ~$100B of cash on hand, and it does not pay any dividends. Let's just assume that Google is nothing more than a box containing $100B, and you own a portion of that box amounting to $1000. Even though you can't reach your hand in and take out that $1000, it's yours. In the event it gets released from the box, you're the only one that can get at it because of your ownership. And because everyone else realizes that, there's a pretty clear value to that ownership that they would rationally pay you for.

Of course, Google is much more than just a box of money, it is a box of many things, some very intangible (but still valuable). This extra value makes it worth far more than $100B. But it's still a box, and if the value gets released from the box, you're the one who gets it. So who wouldn't pay (at the correct price) for that?

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