The economy looked very rosy in October 2019 and NASDAQ was near 8300. Now it's 8900 even when millions are unemployed and even millions more furloughed.
Should the stock market simply be seen as an isolated, self-contained entity with no real correlation to the broader economy?
Besides, there are lots of news out there, including the fact that we're seeing stimulus that dwarfs even what was done during the '08-'09 crisis. Case in point, the top story at the WSJ website now is: https://www.wsj.com/articles/federal-reserve-interest-rates-...
Think of stock market swings as the second derivative of the actual information you're seeing.
Behavioural economics has proven unreliable, with results that are (at least) difficult to replicate, and non-predictive.
Some of it is the common adage "Don't fight the Fed(eral Reserve Bank)." They are dumping what in any other time would be insane amounts of cash into the markets.
Then, there's hopium. Everyone hoping that there will be some quick way out.
This goes beyond just a few stocks like Amazon overweighting the averages - there are broad run-ups.
this does often happen in bear markets, where there's a first initial fall, then a rise, then the real crash to the ultimate lows.
We certainly have not yet seen the capitulation, evident of bear market bottoms, where the last holdouts finally throw in the towel and sell.
My thought experiment is to consider what would happen if it were magically fixed at midnight tonight. Six weeks ago, it probably would have returned to relatively solid footing. Now, I think significant permanent damage has been done. Six more weeks, likely more damage.
I'd love to see any other thoughts on how this thought experiment might play out
[0] https://www.tradingview.com/chart/SPX/JNwcmXqj-S-P-with-and-...
I still think a recession is coming. It's just a matter of time now that the lockdowns are getting lifted without any real control over covid. There'll be a rise in new cases, slightly more stringent measures will come and go, other countries with proper recoveries will keep the US travel bans in place, etc. The market can't defy gravity forever.
It can, of course, defy gravity for long enough to lose you your shirt.
You're repeating a debunked myth https://www.stlouisfed.org/open-vault/2017/november/does-fed...
>One of the most common questions about the Federal Reserve is this: Does the Fed print money?
>There are really two ways to address this question. In terms of the actual, physical printing, no, the Fed doesn’t actually print or produce money in any form. Coins come from the U.S. Mint, and paper currency comes from the U.S. Treasury’s Bureau of Engraving and Printing. The Fed distributes currency after it’s printed.
>However, what many questioners might really be asking is whether the Fed has the ability to control how much money is in our economy. That’s a different story.
>The Fed adds to (or subtracts from) the amount of money in the economy by buying (or selling) U.S. Treasury securities and other financial instruments. This is referred to as “open market operations,” since these transactions take place in the open market. (The Fed isn’t allowed to buy securities directly from the U.S. Treasury.)
>The Fed pays for those securities by crediting funds to the reserves that banks are required to hold, either cash in their vaults or deposits at a Reserve bank.
>“So, in that sense, we can think of ‘printing money’ as adding reserves to the banking system,” said David Wheelock, vice president and deputy director of research.
The Fed adds to (or subtracts from) the amount of money in the economy by buying (or selling) U.S. Treasury securities and other financial instruments. This is referred to as “open market operations,” since these transactions take place in the open market. (The Fed isn’t allowed to buy securities directly from the U.S. Treasury.)
The Fed pays for those securities by crediting funds to the reserves that banks are required to hold, either cash in their vaults or deposits at a Reserve bank.
“So, in that sense, we can think of ‘printing money’ as adding reserves to the banking system,” said David Wheelock, vice president and deputy director of research.
The claim was that they "printed" money. They didn't!
In 2008 every day brought in bad news, with more and more banks failing, home being foreclosed, bad financial numbers, Congress trying to bailout .... which led to overall bad sentiment and the decline in stock market.
Right now, if I look at the new cycle what do I see: A city wants to open up, layoffs, a state wants to open up, stimulus money, people on the beach, layoffs, more stimulus money, GDP down, virus in works, 20% in NY may have been infected, Remdesivir is working....
So, is it a bad news or optimistic news? It's all mixed in. No one knows how to process medical side and financial side together. On top of that there is a lot of liquidity in the market. So, what happens, it ends up in the stock market thus inflating it.
I think there would be a massive whiplash once we start seeing higher unemployment numbers and the real impact of March-? shutdown and see a massive drop in the stock market.
But who knows??
My bet is on this. A lot of people in the market and on main street are assuming that we'll be able to get up and running again quickly when we have better treatments and later a vaccine, i.e. there is nothing structural weighing down a return.
I'm not so optimistic because tourism and travel are huge markets with impacts on other markets. I also don't believe that the situation from 2018 until the pandemic was sustainable. Problems existed then, but were not exposed. There are leadership failures in different places, but it's hard to account for all of those across government and business right now.
Exactly. Many, most ?, were expecting a correction/recession even without any pandemic in 2019/2020. Now this massive shock is bound to shake everything up. I'm not going to use the D word but recession is a given.
The obvious problem right now is, supposing you're a 100% sure that things are going to get worse, where do you put your investments if you're a large firm? Sure if you're a HNer go ahead an buy some put options. Bond rates are extremely low right now so that wouldn't be a wise investment especially if stocks, rational or not, keep going up.
Even though everyone knows this will be bad, nobody knows how bad or exactly what it will look like. So it's very hard to price that. It's almost like we were in a terrible accident, and are still walking around like normal because of shock despite missing a limb.
Yes, if everybody thinks that good performance should increase the stock prices then the performance matters but this is a self-fulfilling prophecy.
Celebrity CEO smoking weed and being cool should be able to beat any technical indicator IMHO. A large number of people might simply act irrationally just to be a part of a movement.
Maybe the best thing Boeing can do for its the stock price is to install a really cool CEO who is good with memes, close down the factories and concentrate on the brand. Is there anything to compel them to produce planes?
The potential of future dividends, buybacks, or acquisitions differentiate stocks from sportsbetting
> self-fulfilling prophecy. Celebrity CEO...
The exceptions prove the rule. You can and do get irrational stock prices. Not everyone can follow the musk model, and if they did, investors would be back to using the fundamentals to differentiate them. If Boeing really thought they could follow the musk model, they would, but I personally don’t think they are in a good position to do so.
Sometimes you can fake it until you make it, but most often you won’t.
Not every company is on the Musk plan because there is limited pool of cult investors and his success is hard to recreate.
The stock market reflects investor sentiment about the viability of of the entities traded. If there's a notion that a company will be worth more in the future and will either pay out a nice dividend or can be later sold at a profit, shares of that company will be in demand and the price will go up. If the company is expected to be losing money and not be worth much or paying out a nice dividend in the future, prices will be going down as everyone tries to sell shares and not be the last one holding something worthless.
If a company sheds a bunch of jobs, that can signal a number of things. One of the things it signals is that it has reduced its expenses. Reduced expenses means, all else equal, less chances of it running out of cash or hitting other kind of money problems, and thereby improves its chances of weathering the coming economic storm. If you thought that Boeing shedding a bunch of jobs meant that it had just secured it's ability to continue to exist and be more valuable once the coming recession/depression is over, would you not want to buy shares now to sell at a nice profit later?
Or if they are sure the FED will keep it from falling
On a global scale GDP is actually negatively correlated with stock market performance.
Also: trillions in new spending causing asset inflation further lowering SPY below its price it would have if such spending happened without covid.
Third reason: SPY yields are still above treasury (risk free) yields... significantly.
The reason that it's up now is because the Fed printed 6 trillion dollars, and is spending it at the financial markets.
Was the market in March also expecting a 20% death rate on top of that?
So...I've started to view the economy as a distributed voting algorithm where we decide what companies should exist and where people should spend their attention. If the fed is adding 6 trillion votes to the financial markets then won't that mean that we focus more of our attention on solving the problems of companies that either:
A) Are large enough to overcome the regulator hurdles to participate in financial markets.
B) Are explosively-growing enough to get VC funding.
C) Are underpriced enough to get private equity funding.
As a software engineer who's mostly worked for companies in category B, I guess I'm fine with this attention. But given what the pandemic is doing to small business, shouldn't society be preparing to devote more of its attention to companies solving problems like "I want some chicken & rice in Roxbury."?
Dumb money is pouring in, and institutional investors are riding the dead cat bounce.
For Boeing specifically, it's because they fired thousands of workers to cut their costs. And to their credit, they're actually expecting a long slump. Many businesses are still deluding themselves.