And the stocks continue to rise, I wonder how far this dead cat can bounce
I say this because I think now that callbacks are starting slowly and lots of offices have said Sept - Oct time will when they 'open the office' again properly - the redundancies will be made before then - then belts tighten, budgets get slashed, spending goes way down due to layoffs - and then Q4 and following quarters will be abysmal.
I should probably buy calls on the S&P to be at record highs by year end instead though because we live in clown world now.
I’ve read that part of the rise is from the Fed lower rates to 0. It essentially pushed banks to buy into the market for their only sources of interest.
I know from the past that company stock usually rises after they announce reorganization. Investors may be seeing opportunities for profit down the road from more optimized org charts following the mass unemployment.
I do believe Dr Fauci and other medical researchers comparing this to 1918. If past is precedent we will see a far worse outbreak and economic fallout in the fall and winter then we did this spring. If the valuation decrease were over pessimistic this time around then next time may be more muted. If the decrease prove to have been over optimistic then expect further devaluations next time. Both of those assuming rational actors and reactions, neither of which assured.
I also think we haven’t seen the full fallout from even the spring yet. I think we won’t know until the end of august how all of the unemployment affected rent and mortgage payments during the spring outbreak. We also don’t know whether the protests are going to spark super spreader events. That could necessitate closing the economy yet again and sooner. On the other side, we don’t have a monthly stimulus or cancelled obligations-those could have up or down impacts respectfully.
I see a lot of really grave uncertainty in the future right now. The pandemic is a very real thing. The protests are too. The political desires to stimulate the economy despite any other affects is perhaps greater still. So I think there’s lots of noise and uncertainty here-which makes for volatility in valuations.
Edit-I also just want to point out that the 1920s were marked by more than just Black Friday in October(date?). I’d suggest we all go back and refresh on how things played out back then to compare to today.
Feel that. Story of every smart person who thinks the market should act logically
While I suppose it's possible that there may be some effect like this, I'm a bit suspicious of the idea that the outlook and risk tolerance of the typical retail investor could change that significantly.
It definitely left me wondering to what extent capital invested in the equity markets has continued to move away from being held by those who are likeliest to be out of work right now.
Pre-COVID, I would never have believed that.
40 million unemployed domestically means lower demand for many businesses. Who will buy new cars (with debt), houses (with debt), consumer electronics, etc etc?
If that's happening at scale, then those 401k accounts are getting massive liabilities stacked up against them.. which falls apart if their value goes down.
Nothing stops your friend from selling everything and leaving it as cash or some non-stock instrument in the account.
So if there's still lots of cash coming in every month from new payroll deductions, there might be no need for the fund to sell stocks to pay out a loan. They'd just buy fewer stocks that month.
They'd only have to sell stocks if the total cash going out (loans, plus distributions to retirees) exceeded the total cash coming in (payroll deductions).