Is the stock market connected to reality anymore? 16 million Americans lost their jobs in three weeks and in that time there's been a substantial rally.
This can't just be short covering. What gives?
This can't just be short covering. What gives?
1) Uncertainty is anathema to markets. At the beginning of the crisis, there was a ton of uncertainty about how the disease would progress, what it’s impact on supply chains would be globally, and how governments would respond. In the last few weeks, the US has gotten a lot more information on how things progress, “flatten the curve strategies” are appearing to work (which reduces uncertainty), supply chains are still very strong and, for staple goods/services, only minority affected, and the central banks of the world are issuing a MASSIVE amount of short term liquidity to prevent credit crunches.
2) (this is a bit more cynical). I suspect the productivity of a huge number of Americans, particularly in service roles, has disproportionately less impact on the economic productivity of publicly traded companies. In other words, many jobs are disposable without impacting the financial health of companies in the stock market. Small businesses are being gutted, and so is a lot of big retail, but it’s been too short of a time for those effects to make a dent in how many of the publicly traded businesses are operating.
That said, a jump in unemployment claims today is likely a non-event for stocks: it was predictable and as such already priced into the market. Markets are driven more by expectations 6+ months from now, for which you get the full spectrum of "90% become poor for many years" to "pumping more cash in, use inflation to deflate debts and go back to business as before". I suspect we will get something in the middle, but its just a wild guess. My 2c.
If this was the case then we wouldn't have since the crash due to Covid-19.
For example, consider a bimodal distribution: 50% +1, 50% -1. The average is zero, but everyone that believes in this distribution believes that zero is highly unlikely. Thus, if there are big benefit for guessing right and little for guessing zero, the actions can rapidly oscillate, seemingly without major external information (just based on whichever of two almost-equally-likely outcomes seems likelier).
So in a way, yes it is disconnected from reality.
The stocks did go crazy low though on 18th March. Tesla pretty much halved its value.
So if things get really bad, since the government has bailed them out once, I suspect they might be thinking there'll be more where that came from.
No, it's a silly game to make traders richer and everybody else poorer.