As scary as the next 12 months appear to be, we will eventually return to a new normal, just as we did in 2010, 2004, 1990, etc.
This is not a properly functioning stock market. People are reacting to massive money injection by the government and the government picking upcoming winners and losers.
> by weighing the prior ~15 years of companies' profits
Are they also adding in the fact that 80% of the last 15 years has been due to life-support QE?
> Even a 12 month period of $0 profits should decrease the NPV of a firm's future earnings by 10%, not 50%
... maybe a 12 month period of $0 NET profits, but what about 12 months of $0 total revenue? For many, many companies that is not a 10% drop in NPV, but bankruptcy.
I agree we will return to a new normal, but what does that look like? Do we just go back to permanent QE like before where the debt market is artificially inflated forever? Or is this bad enough that the government gets to be part of larger corporate decisions now?
There is no model where the next 12 to 24 months looks "bright" for almost any company, so the fact that the stock market is mooning is not rational right now. Trying to justify it as "properly functioning" seems very, very far off base to me.
Yes, seeing a 30% drop in GDP this quarter is huge. Just like the 5 million or so who applied for UI.
However, the expectation is in a few months, restrictions will loosen and the recovery will begin.
So yes, the stock index should drop, but not by 33%. That was an overreaction. So now the market is going up, but it will still be down 10-20% until people get back to work.
I’m expecting something that looks more like a Nike swoosh than a V.
We have a real hard time with 1 year out.