Posted on 04/11/2020 6:19:44 AM PDT by SeekAndFind
A few weeks ago, there was blood on the floor of the New York Stock Exchange. Stocks lost $10 trillion in value and earnings are expected to be in the toilet.
So why did stocks add $3 trillion in value just this week? Why a booming stock market in the midst of cratering economy?
Investors can't explain it.
Bloomberg:
Does it make any sense? To skeptical Wall Street veterans, the answer is obvious: no. While stimulus is flowing and the curve may be flattening, investors are bidding up stocks at a time unemployment may already be 15%, with economists forecasting one of the biggest contractions ever. Only a fool buys equities trading at 40 times the worst estimates for this year’s profits.
To all that, a single rebuttal exists. That in the absence of clarity, investors have no choice but to write this year off entirely. No matter how bad the recession gets, markets look forward -- relentlessly. Whatever horrors the world is yet to endure investors will focus on the recovery.
That's why it's never good to panic when the stock market goes into a funk. If there is certainty in life besides death and taxes, a rising stock market should be added to the list.
“It’s almost as if nobody is even going to worry about 2020,” said Chris Gaffney, president of world markets at TIAA. “If the earnings are so bad that it looks like the company won’t be able to survive, that matters. But for most companies, investors have to look past 2020 because nobody knows what’s going to happen.”
(Excerpt) Read more at pjmedia.com ...
Because the Federal Reserve is creating gazillions in part for buying up stocks.
Next question?
Stock “market” gave up being a gauge for the economy in March 2009. Fed distorts everything now, honest price discovery not allowed.
Bear Flag
Even more miraculous—the dead cat just had kittens!
Stock market is not the economy.
I think everyone has been played about the “shutdown.” What shutdown? The only people I see not working are wait staff in restaurants and furniture store employees. Everyone else is “essential.”
Exactly.
We love you PJ. Don’t go Baghdad Bob on us.
The author’s last name is misspelled. There should be two o’s.
Because people were selling in a panic, and now some of them have un-panicked and are picking up bargains.
DUH.
Don’t mistake the market for the economy. Especially not since the 90s when day trading happened. The market is almost entirely built on the bigger fool theory these days. That being the thinking “pretty sure somebody will buy this for more”. Fundamental concept like PE ratio and profitability are dead. It’s all about selling to somebody else. It truly means nothing anymore.
After losing $60,000 in March, I’m down to losing $10,000 and we have no economy.
No go figure on that one.
Wrong question.
The correct question is "what is the market telling us as it tries to recover?"
What the market is saying is that investors believe the economy and the market will recover...and they don't want to miss out.
What the market is doing right now is looking for a level that reflects the flood of information--good and bad--that is available.
It appears that investors are at this point betting on a near term recovery and are searching for a nice mid-point. If some news starts to come out that there may be a slower recovery or--God forbid--a recurrance, the market will take another dive.
Best to look at the market as a herd of wildebeests. There are always lions lurking in the shadows but there are always delicious green pastures just ahead too. The market is hysterical but sometimes a hysterical response is just what is called for.
You don't ask questions that imply that the herd doesn't know what it's doing because you know better (like the author of this article). The herd has an instinctive, collective sense of danger and opportunity that even its individual members can't see.
The correct question is "what is the herd's movement telling us?"
Two words - quantitative easing.
This program was first launched in 2008, as a countermeasure to a crashing stock price index that threatened to strand the system. If there is no confidence in the daily exchange of equity sales and purchases, the failure feeds upon itself, and even the so-called “bottom feeders’ are swept away in the ebb tide.
This is only an artificial life support system, and cannot be sustained for very long, until a “new normal” which we experienced through all the Obama years gets established - slow to insignificant growth, and the most anemic “recovery” since the days of the FDR “New Deal”, which prolonged the most negative aspects of the Great Depression far beyond what would have been a normal recovery, had little or nothing been done.
The market value of anything in life is now and always has been what's someone is willing to pay for it.
PE rations and fundamentals are the same now as they were in the past...mere guiding tools to help a buyer assess the value of a product/stock.
BTW, in times of rapid growth or change, the ratio you want to look at is the PEG, not the PE.
Well, there’s not much going on anywhere else. Sell your stocks in a panic and the first thing you say to yourself is, “now what?” But consider that the infrastructure is still in place, energy prices are rock bottom, and taxes are much lower under the current administration. The potential exists for a good recovery from this self-inflicted disaster, provided it doesn’t drag out too long.
Since my business has dropped by 95% because my customers are all shut down, I’m going to disagree with you on that.
Simple answer: The market is forward looking. A month ago the outlook was “WE’RE ALL GONNA DIE” and then it was “I’m not quite dead yet”. Now it is “I will survive”.
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