Can This Disconnect Be Sustained? The economy tanks while the stock market still rises

Northman Trader ^ | 05/10/2020 | BY SVEN HENRICH

[SeekAndFind]

We live through very unique times, not only because of the shock of the coronavirus that recently hit the world unexpectedly, but also because of large complex structural issues that have been building for decades.

A popular mantra says the stock market is not the economy and the economy is not the stock market referring to the often seen disconnect between market prices and events taking place in the economy. The most recent example has been Wall Street rallying with each disastrous jobs report hitting the news wires. Even this last Friday markets rallied again unperturbed by the latest unemployment report showing the most severe collapse in employment in our recent history.

Depression like figures, yet the Nasdaq is green on the year, the S&P 500 largely off the lows with many again predicting new highs to come. Why? Because of unprecedented liquidity flooding markets as a result of monetary intervention making the disconnect between Wall Street and Main Street even wider. We can pretend the stock market is not the economy, but there is no stock market without an economy yet we are witnessing an unprecedented disconnect between the two that has been building for years.

Can this disconnect be sustained? Are investors too optimistic about the current rally? What are the implications going forward?

[Bayan]

The market makes better decisions than pundits or agenda driven bureaucrats, every time.

[Ceebass]

Can this disconnect be sustained????

Yes.

The economy sucked under 0bama but with 0 interest rates, quant easing, etc from the Fed, the market doubled in 8 years.

[SaxxonWoods]

Investors currently think the markets overreacted, that’s all.

Maybe they are right, maybe not.

Like every other day with the markets.

[SunkenCiv]

Can This Disconnect Be Sustained? The economy tanks while the stock market still rises [?] ...We live through very unique time...

Yeah, not just unique, *very* unique. The ignorance and stupidity of the piece isn't surprising, given the use of that particular turn of phrase, as well as the moronic title.

Don't hold back, 'Civ! Tell us your unvarnished opinion!

The market rises because it's been down, and it hasn't *continued* to rise, it is still underwater compared to the period a few months ago before the fascist police state governors got their way. When ordinary economic life resumes, we'll experience growth not seen since the end of WWII, or at least the end of the Carter regime. The risk of owning stock is lower now than it will be when everyone is back to work and stock prices aren't at multiyear lows. The author of the crap op-ed should stick to lotto scratchers.

[TwelveOfTwenty]

The experienced investors invest based on what they think will happen, not on what’s happening now.

[Bogle]

I know this is a bit of a tangent, but I can’t understand why we don’t have runaway inflation with all this money being printed and interest rates so low cash. Is there any kind of model that would explain this?

[SpaceBar]

Value is conferred through anticipation of the future.

[Bogle]

“I know this is a bit of a tangent, but I can’t understand why we don’t have runaway inflation with all this money being printed and interest rates so low. Is there any kind of model that would explain this?”

---

Please excuse the word “cash” that appeared mysteriously the first time I posted.

[a fool in paradise]

Tulip markets don’t need people to appreciate flowers.

And those in the market are operating contrary to those who want global financial ruin and socialism

[SmokingJoe]

Markets can't keep going up when the underlying economy keeps tanking. That's funny money. Not sustainable.
Main reason markets have risen recently:
1. Dow went from 29000 to 20000 in just a few short weeks, wiping out all the gains since Trump took power. There was bound to be a rebound.
2. Even after all the recent gains, the market is still down 5000 points.
3. It's the indexes. The Dow 30, The Nasdaq and The S & P 500 are weighted towards the big tech companies like Apple, Microsoft, Amazon, Google, Intel, Facebook etc all of whom made solid revenue and profit gains in the March quarter.
Amazon especially is making more money than because of coronavirus from both cloud and retail. Microsoft and Google cloud are also doing great from lockdowns etc.

[montag813]

Not Bitcoin. Getting hammered this weekend.

[SeekAndFind]

RE: It’s the indexes. The Dow 30, The Nasdaq and The S & P 500 are weighted towards the big tech companies like Apple, Microsoft, Amazon, Google, Intel, Facebook etc

Yes, but even the Russell 2000 Small company index is following the trend of the Dow and the S&P 500.

[max americana]

My cousin works on Wall Street. You are almost right, it’s “what to expect” would be the phrase. One thing he told me too is if you have a weak heart and a weak wallet, dont go into stocks.

[SmokingJoe]

Inflation as measured by the feds, starts off with the increase/decrease in prices of a basket of items that they think measure what the average person spends their income on.
As long as those items don’t go up in price, inflation remains low.

[SmokingJoe]

You are right.

[Lurkina.n.Learnin]

St. Louis Fed@stlouisfed

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Less than 3% of counties produce half of U.S. GDP. How are these counties spread across the nation?

There is a graphic there but I don’t know how to post a pic from Twitter.

[Mr. Jeeves]

When the Fed destroys the dollar, equities gain in dollar-denominated value In terms of the failing currency, equities will rise - and so will gold, silver, Bitcoin, food, water, rent, medicine...

[Trumpet 1]

Inflation may happen when the economy is ultra strong and the prices of labor, raw materials, and fuel are going higher. In other words the demand exceeds the supply. To prevent inflation the interest rates are raised higher to slow down the economy. Today, May 10, 2020 the price of fuel is ultra low. Interest rates are ultra low. Lots of people are not working. Lots of labor just sitting around. People are not spending money. They are saving. Therefore, no inflation. Plus, every other country is shut down. All of the economies are equally down. Those in the delivery sector are doing just OK or better. Also, outdoor road, highway, and building construction are working with normal schedules.

[irishjuggler]

The experienced investors invest based on what they think will happen, not on what’s happening now.

Based on what I see happening on main street rather than Wall Street, my gut tells me that, yes, there is too much optimism. Maybe some of you folks who live in "red states" with state and local governments that understand the need to reopen are seeing something different than what I'm seeing in the San Francisco Bay Area. I'm seeing state and local officials with near-zero understanding that the longer this lockdown goes on, the more small & medium businesses will fail particularly those in the travel/restaurant/leisure sector. I get it that the Dow 30 & S&P 500 are all about mega-cap companies, most of which are well-positioned to ride this out. BUT most of the economy hinges on consumer spending. And it's hard to see how an impending wave of small business failures won't have a ripple effect on consumer spending. I don't thinking the market is adequately pricing that in at the moment. YMMV.