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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?

#21

Post by myth_drannon »

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…

Australian, South Korean and New Zealand's currencies jumped in value because they handled the pandemic very well and are now very attractive investments.

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

#22

Post by jonathanpeterwu »

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-world-order/

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

#23

Post by joyj2nd »

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…

Well, what else to do with your money?

It is called asset price inflation. Most assets will devalue at some point but, in the broader range, won't go to zero.

This is not clear for FIAT money.

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

#24

Post by formercoder »

jhallenworld wrote: post #20
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

There is much bigger risk of deflation during a depression. Do you really think there will be wage inflation when there is 20% unemployment?

Exactly this is why I don’t understand the folks who think inflation is a purely monetary phenomenon. With demand shocks like this how can we not have deflation?

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

#25

Post by ericb »

toohotatopic wrote: post #14
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…

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…

> why should share prices fall by more than 5-10% for every year that Corona is locking down the economy?

Risk adjustment.

1-Risk of death/bankruptcy for companies.

2-Risk of reduced consumer spending. This can happen because people are in financial shock, or because unemployment stays high. Perhaps some of these layoffs aren't "furloughs." Some of these businesses won't survive, like many restaurants. My expense is your revenue, but I won't spend if I don't feel "safe" physically and financially and if I don't have a job, well... On top of which, what if some part of society stops going out?

3-Risk of permanently slowed economic activity due to coronavirus spread in trading partners.

4-Risk that the vaccines don't work out and there is no "time after corona." Even if this risk is small, it is non-zero, and catastrophic.

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

#26

Post by dataminer »

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…

What about high yield bonds, are they worse than investing in stocks right now?

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

#27

Post by vnchr »

xwdv wrote: post #8

Because for most companies, the fundamentals after the pandemic won’t be changed. Great companies are being sold at massive discounts, and as the buying escalates shorts are getting squeezed out and forced to cover. Anecdotal, but during the pandemic my portfolio had shed up to $60k at its lowest point around March or April, and I didn’t sell anything, in fact I started accumulating shortly after the bottom. Since th…

Interesting that some people really dislike this answer.

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

#28

Post by JoshTriplett »

The best argument I've seen is that the stock market typically prices things in faster than other parts of the economy, so the stock market took the hit well before things like unemployment indicators did.

Also, some stocks are doing alright, while others are doing badly, depending on what sector they're in. Looking at the aggregate gives misleading information.

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

#29

Post by joering2 »

toohotatopic wrote: post #14
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…

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…

Because someone has to buy products and services? With 40 mil unemployment numbers it will be hard to sell stuff when noone has power to buy.

Take my mother in law as example. Hard core shopoholic. Amazon and QVC packages coming in daily. Hair nails etc done weekly at salons. Now for two weeks silence. She lost her job and empty bank account hit her like reality check. Shes on her way to a friend - they will do each other hair and nails. And when I told her it will all go back to normal on January 1st, so many people died she tells me “i am not going out anyways for very long time”

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

#30

Post by chiefalchemist »

bb2018 wrote: post #13
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 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.

It's all about risk vs return. Furthermore, in the current environment of high adversity, and increased scarcity there will eventually be innovations. Some of those will translate into products and profits.
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