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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?

#171
post #74

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.

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?

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

#172

Could it be that despite everyone freaking out, the wisdom of the crowd (the market) is pretty sure everything is going to be OK? It's possible that the market is the only thing acting rational right now.

Markets can stay irrational longer than they can stay solvent.

"The wisdom of the markets" doesn't exactly have an inspiring track record.

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

#173

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…

Doesn't this argument mean that the stock market should in theory be recession proof? If stocks are looking forward several decades, then it should be factoring in the recovery from any recession we face. Which as we've seen during various recessions doesn't seem to hold true.

Once investors become truly forward-thinking, snp will hit $30 quintillion 8^)

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

#174
post #122

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…

> 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 ignorant question, if true, how is this not the worlds biggest ponzi scheme? Are we just betting on the possibility of dividends in the future? It just seems illogical. The fraction of meaningless ownership as a shareholder can't…

I am right with you, I've never understood what the actual purpose to owning shares is other than "their price goes up when the company is expected to do well" -- but what do you get for that price being higher?

Without dividends the whole idea of stocks makes no sense to me.

With dividends, I would think "I'll buy this stock for $100 with the expectation that I'll get a $10 dividend next year, a $12 dividend the year after that, etc etc, and eventually make my money back!"

In the case you buy a bunch of stocks and just hold onto them, they generate value by the company doing well. I could buy shares of a bunch of companies and wait 30 years, and if most of those companies are still doing well, I'll have made a profit from dividends, and I can then sell those to some wide-eyed young person who is hoping the company will continue to do well so they can get their payments for the next 30+ years. If the company instead does well for 20 years and then abruptly goes out of business, I still would've gotten lots of payouts from them, but now I can't sell those shares to someone who hopes for future payouts anymore.

But if there are no dividends, none of this makes any sense -- I'm buying the shares, making no money for the 30 years that I sit on them, then selling them to some wide-eyed younger person for a higher price who expects to also make no money for 30 years, but to be able to sell the shares to some new younger person? There's no endgame with a payout here, but there is an end where the company goes out of business. So what value was the share providing the owner over those 30 years??

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

#176

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.

why?

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

#177

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…

Why did it dip in the first place then? Within the first few weeks of Covid19 the circuit breakers were dripped many times, if the market is so forward looking, what happened then?

For a short time, the market envisioned the apocalypse. That’s what the media was selling, and enough market participants bought it to temporarily cause a sell-off. Also, consider that a very large percentage of market trading is algorithmic. In this sort of situation, they often amplify the panic by detecting human panic in the market and automatically selling.

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

#178
I work at a big tech company. One of the big realizations we've made is that WFH is not killing our productivity - it may actually be increasing it. If that is widely true, it has huge implications, and points towards an enormous amount of value that can be unlocked, by allowing professionals to work wherever they want (presumably in lower CoL locales). This article indicates that the housing crisis costs the US economy 1.6 trillion a year, so we should be able to recoup that immense loss (about 2x the military budget) by exploiting remote work tech.

https://www.citylab.com/equity/2015/05/the-urban-housing-cru...

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

#179

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…

“Because the stock market doesn't represent the economy as most people experience the economy.“ That’s my theory. The top 10% own most of the stock but their experience of this crisis is quite different from people who already had low wages now losing their jobs. I bet most of the people (not all) on this site don’t feel the crisis economically at all or only with minor pain. Personally I think we should stop looking…

In the end what really counts is the health of members of society as a whole.

Providing everyone with basic life necessities would be a good start.

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

#180

Earlier quoted context omitted.

Yes. I'm sure plenty of Theranos / WeWork style opportunities will emerge to pick up the slack. It's a fundamental problem of capitalism: the market's notion of "value" is weighted by wealth, without growth to stir things up wealth concentrates, and those looking to create value are increasingly forced to search for marginal "rich people problems" rather than tackle obvious "poor people problems." You wind up in a pa…

Exactly, you get rich by doing what the rich want, not what most people want, that’s why Lamborghini owns Volkswagen! Wait..

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