
Why is the stock market rallying when the economy is so bad? - harambae
https://www.wsj.com/articles/why-is-the-stock-market-rallying-when-the-economy-is-so-bad-11588974327
======
nkurz
[https://archive.is/cmMx5](https://archive.is/cmMx5)

It's a decent article. Here are their 5 reasons:

1\. Bets on a “V-Shaped” Recovery

2\. Market Leaders Keep Rising

3\. Corporate-Earnings Expectations Remain High

4\. Old Habits Die Hard

5\. The Fed’s Backing

Personally, I'm betting we're still headed to a bloodbath, but slowly. This
quarter's earnings are expected to be terrible, so this is already priced in.
But the market is expecting a recovery soon after society starts opening up
again. If (when) this strong recovery doesn't happen, the bottom falls out. If
the reopening is combined with a second wave of epidemic and a renewed
lockdown, something akin to financial panic ensues.

~~~
toohotatopic
Even if there is a second wave, there will be a time after Corona eventually.
There won't be any new players by then so the market shares will almost be
unchanged.

Stock prices are discounted future profits for about 15 to 20 years. Those
profits are still there when Corona is over. From that perspective, why should
share prices fall by more than 5-10% for every year that Corona is locking
down the economy?

*edit: If anything, the economy will prosper because Corona has forced every company into the 21th century by requiring remote work and digital workflows.

~~~
Dumblydorr
How do you know there will be a time after Corona? In all likelihood, it is
here to stay like influenza and rhinovirus and other respiratory illnesses.
The only way we recover the economy is by gaining herd immunity such that
25-50k yearly die, not 200k. That comes with vaccine and with wide scale
exposure, which I'd wager is by 2021 summer. But even then, old folks will
still die by the thousands each year due to covid 19.

~~~
koheripbal
A vaccine is a near certainty.

~~~
foob4r
Over an infinite period of time, sure.

------
paulpauper
An increasingly large % of the economy is concentrated in a handful of highly
profitable, efficient tech companies and multinationals such as Walmart,
Microsoft, Amazon, Google, and Facebook. Stimulus $ is pure bottom line growth
for these huge companies as smaller businesses close. Also, huge growth in
business to business commerce, bypassing consumer spending altogether.
Facebook and Google selling ad space to other big businesses such as IBM.
Microsoft, Nike, or Proctor and Gamble. Also, the wealthy are more impervious
to economic weakens than the lower classes, and consumer spending growth from
the top 10% is enough to offset loses in the bottom 90%.

~~~
encoderer
Yes, all this, plus most of those out of work today are doing fine because of
the stimulus and additional $2400 a month in unemployment from the federal
govt.

I know family members who are making more at home now than they do when they
are working.

~~~
schaefer
i qualify and filled for unemployment benefits over a month ago after a
several hundred employee layoff at my company. I still have not seen a penny.
Many others I've talked to in my state are in exactly the same position.

in Nevada, the department of employment has dropped business hours to just
three days a week. there are no queues when you call in. there is no "your
call will be served in the order this call was relieved". there is only the
busy signal. day after day - the busy signal.

people's ability to actually work with the employment office differs
dramatically state by state.

please don't generalize. Platitudes about how the unemployed are "doing just
fine" aren't universally true. Many of us are watching personal savings vanish
week by week while with no resolution in sight.

~~~
Jommi
That shouldn't mean you will never see a penny. AFAIK you will be prorated on
the payments for sure, but of course if it's been over a month seems like
there is a bottleneck in the governmental process for the benefit. That
doesn't disprove what the OP was saying.

~~~
treyfitty
Prorated isn’t the correct term here. It’s retroactively paid.

And that assertion is false. The $600 per week is only until July 31.

------
kerkeslager
Because the stock market doesn't represent the economy as most people
experience the economy.

First, a lot of companies don't pay out dividends or buy back stock these
days, so as time passes, removing their stock price from the price at IPO,
their stock price becomes based on perception--not even perception of the
reality of the company's value, but perception of the _stock 's_ value, which
is increasingly just speculation. The stock price might remain tied to the
performance of the company in broad strokes, but without regular dividends,
sales, or buybacks to tie the stock back to the company, there's nothing to
keep it from becoming disproportionate with regards to the company's value.[1]

Second, when companies _do_ pay dividends or buy back stock, it's sometimes
done by borrowing money. This actually drives down the value of the company
(since now the company has to pay interest on those loans) but drives up the
value of the stock--the value of the company and the value of the stock are
going in opposite directions.

Third, with the wealth disparity in the US, even if 90% of people pull out of
the stock market, it's quite possible for the stock market to go up, because
the other 10% own >80% of the stock market. 90% of Americans can divest
completely from the stock market, and it could at most lower the stock market
by 20%.

This is why stock market metrics are not metrics I care about when determining
how the economy is doing.

[1] EDIT: What I mean by "broad strokes" and "disproportionate" here is:
Events occur which change the value of the company and the value of the stock,
and at least the direction of these price with regards to these events is
likely to align. In broad strokes, because people believe the value of the
stock is tied to the value of the company, if a "good" event happens, the
stock price goes up, and if a "bad" event happens, the stock price goes down.
But it's pure speculation _how_ good or _how_ bad these events are. If big bad
events are downplayed so they only are represented as slight drops in stock
price, and small good events are marketed well so they are overrepresented as
big upticks in stock price, then over time this can result in a stock price
that goes up, when the value of the company is actually going down.

It's actually even more complicated than that.

~~~
coffeemug
_> [...] these days, so as time passes, removing their stock price from the
price at IPO, their stock price becomes based on perception--not even
perception of the reality [...]_

John Maynard Keynes developed this idea (that came to be known as Keynesian
beauty contest[1]) in 1936. This isn't a new property of the market, it has
always been the case.

 _> when companies do pay dividends or buy back stock, it's sometimes done by
borrowing money_

It's not clear that this is a problem, given that cash is basically free
(though they do have to pay back the principal). I'd be interested to see what
proportion of dividends and buybacks comes from borrowed cash. I suppose
calculating such a thing would be very difficult, but it'd be interesting to
see _some_ analysis on this.

 _> if 90% of people pull out of the stock market, it's quite possible for the
stock market to go up_

What if 90% significantly cut consumption? Ultimately the companies have to
sell their products to _somebody_.

[1]
[https://en.wikipedia.org/wiki/Keynesian_beauty_contest](https://en.wikipedia.org/wiki/Keynesian_beauty_contest)

~~~
kerkeslager
> What if 90% significantly cut consumption? Ultimately the companies have to
> sell their products to somebody.

Well, that's almost the interesting question.

A certain percentage of what the 90% consume, they can't stop consuming. You
have to eat. You have to wear clothes. You have to live somewhere. You have to
go to the doctor. So there's a whole big chunk that the 90% really can't stop
consuming.

And if you want to be in the upper parts of that 90%, you need a computer, a
car, a cell phone, college... So there's a bunch more of that where the 90%
could stop consuming, but it would be a pretty significant sacrifice.

And for the remainder, there's an entire marketing industry manipulating us to
make sure we don't stop consuming. Even as someone who actively tries be aware
of marketing and remove marketing from my life I catch myself sometimes
falling for it, and buying things I don't want or need. And I'm sure there are
times it happens when I don't notice it. A significant part of Hacker News
thinks advertisers are just out to help us find products we need!

 _The proles will never revolt, Winston._

The interesting question isn't really whether people will voluntarily cut
consumption. It's more, "What will happen if the bottom 90% loses the income
necessary to consume?"

Cynically, I think that won't happen, and the top 10% will just make enough
concessions to keep the 90% alive and not revolting. We already see that in
things like Amazon's $15 minimum wage: it's not a meaningful wage when Bezos
is making $9 million/hour, but they can always make arguments like, "We're
paying more than our competitors" and "We're preventing homelessness".

And that's not necessarily a bad thing: I want to see change, but I'd rather
see it happen slowly through education and care than quickly with blood
running in the streets.

------
aazaa
> Measures by the Fed and U.S. government have underpinned the recent rally
> across markets. The Fed made it clear it was willing to step in to buoy the
> economy. Why bet against the market when the central bank is willing to do
> that?

The Fed has gone far further than just this. The Fed is going to buy as many
assets as it takes. Treasuries. Corporate bonds. Junk bonds. Munis. It'll buy
the assets directly. It'll buy them through ETFs. The Fed will buy so much
with its infinite balance sheet that you're going to get tired of getting rich
by front-running the Fed.

The Fed is in the fight of its life. The enemy is dollar strength. Have a look
at what the dollar was doing during the depths of the recent crash. It was
going much higher.

Here's an investment hypothesis. It could be wrong, but for now, it explains
some things.

Should the dollar start climbing above 100 on the DXY index[1], watch for:
falling stock markets; falling bond markets; falling commodities and gold
markets; falling bitcoin; failing businesses; bank distress. At the same time,
watch for the Fed to announce new asset purchase acronyms.

The dollar is the world's currency and the Fed is the world's banker. There's
a lot of dollar-denominated debt offshore. When the dollar strengthens, those
loans get more expensive to service. To raise cash, foreign holders of stocks
and bonds start selling.[2]

The US stock markets have become strongly coupled to the US dollar and
simultaneously a predictor of Fed action. Dollar goes up, stocks go down, Fed
starts buying assets. Dollar goes down, stocks go up, Fed steps back.

The thing to watch for in the coming months is some kind of dilemma. For
example, watch for Fed purchases to lead to a _stronger_ dollar. At that
point, the Fed will need to decide which master to serve.

[1] [https://www.tradingview.com/symbols/TVC-
DXY/](https://www.tradingview.com/symbols/TVC-DXY/)

[2] [https://www.lynalden.com/global-dollar-short-
squeeze/](https://www.lynalden.com/global-dollar-short-squeeze/)

~~~
shostack
Another factor to consider...there are other nations that are actively working
to undermine the strength of the dollar as the global reserve currency. If
they can sufficiently erode trust in the US financial machine, much bigger
problems arise.

------
clomond
Because a company’s stock price is _in theory_ what the market expects is the
sum of the total future discounted cash flows that unit of “equity” generates.
[1]

This means that fundamentally, stocks are forward looking several decades and
beyond. The economy right now might be bad but if the expectation is that
there is a slow and long recovery lasting 2 years, if a company is expected to
be operational, profitable and growing in year 3-year 10, those profits are
built into the share price.

[1]
[https://en.m.wikipedia.org/wiki/Valuation_using_discounted_c...](https://en.m.wikipedia.org/wiki/Valuation_using_discounted_cash_flows)

~~~
bamboozled
Why did it dip in the first place then? Within the first few weeks of Covid19
the circuit breakers were dripped many times, if the market is so forward
looking, what happened then?

~~~
kube-system
There is a difference between being forward-looking and being able to predict
the future.

Nobody thought the American economy was going to shut down, until it became
clear that was going to happen. That was when we hit the circuit breakers.

~~~
matthewdgreen
Arguably the actual economic outcome has been worse than most people would
have predicted back during those crazy days in March. The US's management of
the pandemic has been worse than most of us could have predicted. And yet
stocks are up.

~~~
kube-system
That could be. Although I'd argue the opinions of "most people" are not always
relevant to market moves, because most people are not controlling most of the
money.

Regardless, the factors you mention are only two of the many factors that
affects the value of stocks. The reason that causes a crash isn't necessarily
the inverse of the reason it may go back up.

Poor management of the pandemic isn't necessarily a reason for stocks to drop,
either. The market doesn't care about public health any more than it affects
profits.

~~~
matthewdgreen
If we assume that the market is rationally pricing future revenues (and I
don’t personally assume that at all right now) then you have to look at early
March as a prediction that things were about to get extremely terrible in a
hurry. As a macroeconomic prediction, that seems like it’s actually a pretty
good prediction —- based on where things are in the real economy. But the
stock market has since decided that the actual outlook is about the same now
as it was in October 2019 on the tail of a record expansion with 3.6%
unemployment. That doesn’t seem so reasonable anymore.

------
brianchu
The explanation is _very_ simple. The pandemic is not nearly as bad as people
thought it would be in March.

Models were predicting hundreds of thousands of deaths in the USA over the
next few months, _with_ lockdown. Many people were predicting hospitals would
be widely overrun in New York City, parts of California, etc (again, with
lockdown). These models and predictions, of course, were wrong.

Printing money and stimulus should have been expected (given the government's
response in 2008) and therefore priced in, at least in theory. If we actually
had massive numbers of bodies piling up outside hospitals in all major US
cities, no amount of money printing would have propped up the markets.

~~~
will_walker
We are going to cross that 100k death toll by June, and there will be an
acceleration in 2-4 weeks as we see the effects of reopening efforts on
transmission rates. [1]

Brooklyn funeral homes have trailers full of bodies waiting for burial. Just
because it’s not happening where you can see it doesn’t mean it’s not
happening. [2]

1\. [https://projects.fivethirtyeight.com/covid-
forecasts/?ex_cid...](https://projects.fivethirtyeight.com/covid-
forecasts/?ex_cid=rrpromo)

2\.
[https://www.google.com/amp/s/www.nytimes.com/2020/04/29/nyre...](https://www.google.com/amp/s/www.nytimes.com/2020/04/29/nyregion/bodies-
brooklyn-funeral-home-coronavirus.amp.html)

~~~
brianchu
Some models were predicting multiple hundreds of thousands of deaths, with
lockdown. The Imperial College model was predicting 1 million deaths, with
lockdown. I completely agree cases will rise as places begin reopening. But
whatever the outcome it will be _with reopening_ \- still better than what the
market expected in March.

Yes, NYC was the only place in America where the system was close to overrun
and some hospitals actually were overrun, I'm not disputing that.

------
magicsmoke
> And as has often been the case in recent years, investors find themselves
> faced with few attractive alternatives if they opt out of betting on stocks.
> The problem is so familiar it has its own acronym: TINA, or There Is No
> Alternative to stocks.

Cash: Gets eaten away by inflation. Although the CPI doesn't indicate high
inflation it only measures consumer goods. Inflation is there in the price of
investments. If you don't invest now, it'll cost you much more in the future
to own assets with positive rates of return.

Bonds: Near 0% interest rate, practically no better than holding cash.

Real Estate: Not nearly as liquid as stocks, but the price of real estate is
propped up by similar logic.

International Investments: Now this could be interesting if capital flight
from the US begins occurring. However, every other economy is hurting like the
US's or has significant problems with transparency and whether investors can
get their money back out again.

Stocks are more than just their market price. They represent ownership in a
piece of the American economy and its future dividends. As of 2016, the
richest 10% of America owns 86% of its stocks / future economic output. With
the economy plunging while stock prices remain high, this means the fence
between being a renter and a owner just got even higher.

~~~
Hydraulix989
Why are stocks inaccessible to so many Americans? There are fractional shares,
and you do not have to be an accredited investor.

~~~
closeparen
Because the priority order is:

a) Consumption spending

b) Real estate

c) Stocks

When middle class people hit diminishing returns on electronics and vacations,
they upgrade their houses. Appetite for remodeled kitchens and bigger, nicer,
better-located houses is voracious, so relatively few people satisfy it and
fall through to stocks.

Making sacrifices on housing in favor of your stock portfolio is of course
possible, but will get you a lot of weird looks and pressure from family,
particularly if kids are involved.

~~~
karatestomp
The biggest tax advantages for investing go to the rich, who can arrange their
businesses and finances to max out retirement accounts, and very highly paid
professional with fat 401k matches. No matter how someone with a normal salary
and a 2% match tries they _cannot_ get anywhere near maxing out a 401k, due to
how they’re structured (over 50% of the max can _only_ come from an employer,
and the employee can’t make that up on their own). They benefit the already-
well-off much more than the middle class or poor. So there’s discouragement to
savings built into our tax law (or stronger-than-appropriate encouragement
available only to the already-doing-quite-well, if you prefer)

~~~
freediver
"Rich" typically do not care about their retirement accounts and do not have
an employer. They typically benefit from owning a business, having a stream of
passive investments and compounding growth. But this may depend on your
definition of rich.

~~~
karatestomp
It’s my understanding that one can arrange for oneself (and family members) to
be employed by one’s businesses such that 401ks are maxed out. This can amount
to a huge _de jure_ employment benefit but a _de facto_ slow-motion tax-
advantaged inheritance over, say, 20 or 30 years. Just live off trust assets
and the rest of your wages (or whatever) until you can draw on retirement.

Though yes it’s probably too small-potatoes for the _rich_ rich to bother
with. Mere tens-of-millions business owners are more the audience for that
maneuver. Like everything else it seems one is likely to be smacked down for
attempting to use it while not-rich (need enough legitimate business activity
to make the wages to relatives plausible)

------
cs702
What truly boggles my mind is this:

* Personal consumption expenditures constitute 67% to 68% of US GDP every year: [https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri...](https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&nipa_table_list=5&categories=survey)

* _Business revenues_ are the flip-side of those consumption expenditures, because every dollar consumers spend, to a close approximation, _is a dollar of revenue for some business_ \-- whether it's your Aunt Tilly's burger joint, your local movie theater, one of the airlines, a downtown hotel, an amusement park like Disneyland, a retailer like Neiman Marcus, and yes, Amazon and Google too. So, 67% to 68% of US GDP every year, give or take, is made up of business revenues from sales to consumers.

* If consumer spending in the US collapses by, say, 30% (a figure I've seen in some articles), business revenues from sales to consumers in the US necessarily declines by a similar magnitude at the same time. If two things are near mirror images of each other, and one declines 30%, the other declines by a similar magnitude too. For every expense not incurred by consumers, there's an equal sale not made by some business.

I don't even know _how to reason_ about the impact of a 30% collapse in
business revenues across the entire country.

See also:
[https://news.ycombinator.com/item?id=23116055](https://news.ycombinator.com/item?id=23116055)

~~~
proverbialbunny
It's not cleanly divisible across companies. Some will get hit very hard while
others will be nearly effected, similar to unemployment right now. Some people
are untouched and others are hit hard.

~~~
cs702
Yes, of course, but think beyond the immediate consequences.

If that -30% collapse in consumer spending affects mostly, say, half of all
businesses, that half will see its consumer revenues collapse by around twice
as much, or -60%. Most of those businesses will fail and most of their
employees will be out of a job, contributing to a greater collapse in consumer
spending.

The economy seems to me unlikely to be able to "repurpose all those human
atoms" quickly enough, as many people are and will be understandably afraid of
returning to work before there's a treatment or vaccine.

~~~
proverbialbunny
Previously when we have large problems like this, companies are not allowed to
loan out so much debt it would bankrupt many non-startups. If it's different
this time, it's because companies are allowed to loan at far more than they
should be able to. The last time companies (and people) were allowed to loan
out so much it caused major problems was 1929.

The Spanish Flu crashed the stock market pretty badly with a quick recovery in
the 1910s similar to today, but loaning was not crazy then so it didn't hurt
the economy in the long term.

------
fallingfrog
This quote from Jeffrey Sachs might offer some context:

“Look, I meet a lot of those people on Wall Street on a regular basis right
now... I know them. These are the people I have lunch with. And I am going to
put it very bluntly: I regard the moral environment as pathological. [these
people] have no responsibility to pay taxes; they have no responsibility to
their clients; they have no responsibility to counter parties in transactions.
They are tough, greedy, aggressive, and feel absolutely out of control in a
quite literal sense, and they have gamed the system to a remarkable extent.
They genuinely believe they have a God-given right to take as much money as
they possibly can in any way that they can get it, legal or otherwise.

If you look at campaign contributions, which I happened to do yesterday, the
financial markets are the number one campaign contributors in the US system
right now. We have a corrupt politics to the core.. both parties are up to
their necks in this.

But what it’s lead to is this a sense of impunity that is really stunning, and
you feel it on the individual level right now. And it’s very, very unhealthy,
I have waited four years, five years now to see one figure on Wall Street
speak in a moral language. And I’ve not seen it once.”

~~~
Ididntdothis
They also pay big bucks to ex politicians to give speeches and some
politicians and regulators get big money jobs there after leaving office .

------
jonathanpeterwu
Worth reading all chapters that are in here, but chapter 3 gets at the meat of
where we're heading. We're at the end of a long credit cycle post WWII,
dislocation of the dollar from the gold standard, to bretton woods, to now QE
printing of money being loaned to the government by the fed.

Market reflects the cash flow available being printed by the FED to keep the
markets up.

[https://www.principles.com/the-changing-world-
order/](https://www.principles.com/the-changing-world-order/)

~~~
jalopy
Don't see a chapter 3?

~~~
peterwoerner
Where we are now at the end of chapter 1?

------
d_burfoot
I work at a big tech company. One of the big realizations we've made is that
WFH is not killing our productivity - it may actually be increasing it. If
that is widely true, it has huge implications, and points towards an enormous
amount of value that can be unlocked, by allowing professionals to work
wherever they want (presumably in lower CoL locales). This article indicates
that the housing crisis costs the US economy 1.6 trillion a year, so we should
be able to recoup that immense loss (about 2x the military budget) by
exploiting remote work tech.

[https://www.citylab.com/equity/2015/05/the-urban-housing-
cru...](https://www.citylab.com/equity/2015/05/the-urban-housing-crunch-costs-
the-us-economy-about-16-trillion-a-year/393515/)

~~~
mancerayder
I don't know. I work in tech and almost everyone I know is finding themselves
less productive and can't wait to get back to the office. Maybe because most
of us live in an apartments and not magestic houses with woods or lakes behind
them, and the feeling of being trapped indoors is neither healthy nor pushes
one to work more effectively.

My PC is in my living room and I'm on it, in the same seat, at the same desk,
using the same monitor as I use for work, typing to you here on a Sunday
afternoon. Tomorrow at 8:30 am I will be here, too. And I was here for hours
reading the news and trying to find a couch online.

I can't wait NOT to WFH. I hate it. The option to do so is great, though --
maybe one Friday out of every two I will start to do it.

~~~
globular-toast
Then move somewhere that has a proper home office. You can live anywhere now.

------
humaniania
Maybe something to do with the Federal Reserve buying $2.5 Trillion in assets
over the past 2 months?
[https://fred.stlouisfed.org/series/WALCL](https://fred.stlouisfed.org/series/WALCL)

~~~
proverbialbunny
For the first time ever the Fed started buying ETFs. So yah..

------
rsp1984
What is most mind-boggling about this recent rally is that basically all the
major indices are back to where they were Q2/Q3 of 2019. The Nasdaq is even
back to January 2020 levels.

Therefore, the market apparently believes that the environment for stocks
today - COVID raging, approaching 20% unemployment, mass bankruptcies, etc -
but also central banks creating trillions of USD - is overall as good as it
was towards the end of 2019.

Since it is clear that even with the central banks' support economic recovery
to late-2019 levels is going to take while, the conclusion can only be that
the market anticipates most of the central bank's new money to drive up asset
prices again instead of driving the real economy. Sad times.

~~~
TheBlight
The unemployment numbers are deceptive. >80% are furloughed and would have
their jobs back as soon as lockdowns end and business picks back up.

~~~
netsharc
But realistically business won't bounce back this year, will it. Big parties
in packed bars? Even without any governmental restrictions, I think a lot of
people will avoid these things; because they don't want to get sick. This will
also affect e.g. numbers of Uber rides, as well as how much beer/food the
bars/restaurants buy. Businesses connected to foreign markets will also be
affected by lockdowns there; airbnb will still be in a world of pain, as well
as travel-related businesses.

~~~
TheBlight
Anecdotal evidence suggests maybe people are ready to get back to normal
sooner than many might suspect? e.g.
[https://twitter.com/nick__puckett/status/1259541624389955584](https://twitter.com/nick__puckett/status/1259541624389955584)

------
throwaway_jobs
People don’t realize in 2008 on the verge of financial collapse the government
passed two bailouts totaling $1.8T leading to the longest bull market in
history.

We have already passed bailouts totaling close to $7T...no matter what happens
the market will rocket, basically WW3 has been priced in so as long as that
doesn’t happen it’s to the moon.

~~~
MattGaiser
The USA also had the longest period of economic growth in history after 2008.

[https://www.cnbc.com/2019/07/02/this-is-now-the-longest-
us-e...](https://www.cnbc.com/2019/07/02/this-is-now-the-longest-us-economic-
expansion-in-history.html)

~~~
stefan_
Or, you know, stock market growth, like this very title alleges. Taking on
debt and selling fundamentals just so you can issue some stock buybacks.

------
Dumblydorr
How about because big companies are propped up by the government and would
always get bailed out? The economy is stacked towards big players, who have
power to lobby and get favorable regulations. Therefore, good times or bad,
big companies will get paid by Uncle Sam or by all of us, or both.

~~~
kazen44
also known as privatize the profits, socialize the losses.

------
cft
This is the inflation that everyone is afraid of. Since the money has been
mostly injected from the top of the society, it has been confined to the asset
bubble. If this money filters through to the bottom or there's significant
injection directly to the bottom (SBA payment protection, $1200 direct
assistance, basic income, etc) then we will see consumer inflation as well

~~~
MattGaiser
We are still waiting for the surge of inflation you inflation hawks complained
about in 2008 when this was all last done...

[https://www.usinflationcalculator.com/inflation/current-
infl...](https://www.usinflationcalculator.com/inflation/current-inflation-
rates/)

~~~
changchuming
He did specifically say asset bubble. And look at how much the stock market
has grown since 2008. It has outpaced CPI by a huge margin.

~~~
mrep
Annualized S&P 500 Return with Dividends Reinvested from april 2008 to april
2020 are 8.285% [0] which is entirely in line with historical returns [1]. How
is that an asset bubble?

[0]: [https://dqydj.com/sp-500-return-
calculator/](https://dqydj.com/sp-500-return-calculator/)

[1]:
[https://en.wikipedia.org/wiki/S%26P_500_Index#Performance](https://en.wikipedia.org/wiki/S%26P_500_Index#Performance)

------
MattGaiser
1\. The economy is not that bad for many companies in the stock market. Why
would Proctor and Gamble be that negatively impacted during this? It lost 20%
of its value though. Same with a stock I hold. It was slaughtered for being an
airline stock, but it mostly does flights to remote communities, which are a
government-funded necessity so they can eat and have medical care. P&G should
not have meaningfully fallen and this other stock should have lost maybe 20%.
It lost 70%. Now it is only down 40%. So the market didn't know what to do and
overreacted in many places. Same with all sorts of natural gas stocks which
got slaughtered along with oil. Much of the initial drop was unjustified.

2\. The stock market will walk away with a larger share of the economy than it
had before. Vast amounts of shopping moved to Amazon and online venues. The
large publicly traded restaurants will survive or just buy out flailing
franchisees at a discount. So less pie, but a greater share for public
investors.

~~~
stefan_
Uhm, because P&G is a full out consumer business and there is now 15%
unemployment?

~~~
MattGaiser
P&G mostly sells things that are essential, so these are not the things
typically cut very much even when people are living on 60% of their incomes.

P&G did not take a large hit in 2008 either. P&G stock did though.

[https://www.macrotrends.net/stocks/charts/PG/procter-
gamble/...](https://www.macrotrends.net/stocks/charts/PG/procter-
gamble/revenue)

[https://www.macrotrends.net/stocks/charts/PG/procter-
gamble/...](https://www.macrotrends.net/stocks/charts/PG/procter-gamble/net-
income)

------
avvt4avaw
The stock market is a leading indicator. Economic data (unemployment,
manufacturing, GDP etc) are all lagging indicators.

The terrible economic data (high unemployment, low growth) already showed up
in stock market returns in the first three weeks of March. What we have seen
in April/May represents improving expectations for the economy in the future
(as in, a few months to a few years... in theory the market discounts future
earnings to infinity, but in practice it is not looking ahead more than 3-5
years most of the time, which is why it is so volatile).

~~~
the-dude
Perhaps in this particular crisis, unemployment may be a leading indicator
instead of a lagging one.

------
mathgenius
People buy into a rally because they don't want to miss out, they expect it to
keep on rallying. It's herding behaviour, and leads to so-called dead-cat
bounces. At least in the short term, there's no reason to expect any
intelligent price discovery from the markets. Come back in six to twelve
months and then we will see.

------
toohotatopic
Could it be that it is not so much the stock market rallying but the dollar
plumbing?

Money will be printed to keep the economy going. If people assume that this
will devalue the dollar then stocks are a safety heaven and demand for them
increases which drives up prices whether the dollar is falling or not.

~~~
simonh
The dollar plumbing relative to what? Not other currencies by the looks of it.

~~~
dataminer
Relative to assets, real estate, stocks, gold etc. Money is getting created in
enormous quantities very quickly, while assets cannot be created so quickly.
So all currencies are getting devalued relative to assets.

~~~
nikanj
The dollar has already plummeted compared to assets. Real estate is
ridiculously expensive when measured in dollar, same for stocks too.

------
CalRobert
Where else you gonna put your money? Bonds? Cash? Land? Foreign funds? Nothing
looks great. Maybe invest in silly tech companies? Who knows, maybe one of
them is the next Google!

As for how things are bad for the regular joe or jane while stocks go up;
companies could literally enslave a good chunk of the population and still be
profitable, meriting a high stock price - moreso, even. There's prior art
here. High stock prices can be an indication that companies are just really
good at extracting the wealth produced by labour.

~~~
Gibbon1
> High stock prices can be an indication that companies are just really good
> at extracting the wealth produced by labour.

Western companies have become adept getting handouts from governments and
central banks. Chinese companies extract value from labor.

------
xwdv
Because for most companies, the fundamentals after the pandemic won’t be
changed. Great companies are being sold at massive discounts, and as the
buying escalates shorts are getting squeezed out and forced to cover.

Anecdotal, but during the pandemic my portfolio had shed up to $60k at its
lowest point around March or April, and I didn’t sell anything, in fact I
started accumulating shortly after the bottom. Since then, it has not only
recovered but it is now climbing to all time highs.

~~~
vnchr
Interesting that some people really dislike this answer.

~~~
xwdv
The funny thing is, I’ve been giving stock and investment advice on HN for
years, and always get downvoted. Yet if you had followed my advice, you would
have made a ton of money.

Some people cope with their FOMO with denial and downvotes, or saying cliche
things like “Ya can’t beat the market” or “The Fed can’t keep printing money
forever!”

------
godelzilla
Because the stock market is a pyramid scheme propped up with printing money to
enforce rampant inequality? Just a guess.

[https://www.cnbc.com/2020/03/27/the-feds-balance-sheet-
just-...](https://www.cnbc.com/2020/03/27/the-feds-balance-sheet-just-
passed-5-trillion-for-the-first-time-ever.html)

~~~
QuesnayJr
The bulk of the Fed intervention is in the bond market, particularly
Treasuries. They are also increasing their intervention in the exchange rate
market. If the Fed was trying to pump up the stock market, wouldn't they buy
stocks? Instead it looks like to me the Fed is essentially financing the US
government's fiscal stimulus.

~~~
kitotik
A large portion of the stimulus is going to publicly traded companies, so that
would have the effect of propping up stocks that may otherwise trend towards
zero.

~~~
yborg
There are more or less no limits on the stimulus money, so corporations that
have issued debt to buy back shares can use it to retire that debt and then
issue even more debt in the current hyper-low rate environment. It's
essentially a way for companies to transfer the money into the hands of their
executive management.

~~~
kitotik
I had a very hard time understanding why this setup was so widely accepted
during the last corporate welfare program in 2008/2009 when the amount was in
the $500B range.

I’m now at a complete loss as to why there isn’t more of an outcry when it’s
in the $3T range.

~~~
newshorts
Because most people don’t really understand it, or think it’s too complicated
to understand

------
beervirus
[https://brrr.money/](https://brrr.money/)

------
JoshTriplett
The best argument I've seen is that the stock market typically prices things
in faster than other parts of the economy, so the stock market took the hit
well _before_ things like unemployment indicators did.

Also, some stocks are doing alright, while others are doing badly, depending
on what sector they're in. Looking at the aggregate gives misleading
information.

------
fullito
Why is that hard to understand?

What else should i suddenly do with my money if i invested it in the stock
market?

I mean srsly getting it out now to do nothing with it means losing money. If i
invest long termish, even if corona hits hard, after it hit, live continues
and the economy will recover.

We lost 2 years of stock market growth anyway. Thats a shit tone of money.

As bad as it sounds, the worst two things from corona are: people dying and
business not conducted. People dying also means reduced cost for the economy
due to less old people (more working people ratio) and less sick peole/health
insurance costs after. The other thing might mean that we clear out unhealthy
businesses. But who pays the bill? People who had money before probably. All
others hit the base line of social security.

Lets see how it plays out. To be honest, i don't have a better idea and as i
don't need to get it out now, i will keep it where it is.

And rallying it is because live goes on.

~~~
anm89
You are thinking like a small individual investor.

Many larger players are highly leveraged. They don't always have the option to
ride the lows.

These players have wildly more influence over market prices than mom and pop
investors who can ride crashes.

~~~
emerongi
I thought it was the other way round. Mom and pop pull money out because they
need to use it when the economy turns bad, big players can ride the wave
because their everyday lives really aren't affected.

~~~
anm89
It can go both ways but institutional traders have access to huge leverage and
can also handle large write downs. They take margin calls that are enormous by
mom and pop standards all the time.

------
xivzgrev
Because the economy isn’t “bad” like in previous recessions. Generally lots of
people are unemployed because of government mandates not to work, not because
businesses are experiencing lack of demand. When the shelter orders are
lifted, much of the unemployed will be able to resume work. People will be
going to the mall, travel, out to eat, etc.

Now it’s not going to perfect - some businesses may find demand doesn’t
immediately pick back up (or at all), and then real lay offs happen.

IMHO this is why we find the stock market near previous highs but not quite
there.

------
ryansmccoy
While there are some good explanations already mentioned, the bottom line is
that stock prices are forward-looking in the sense that investors buy and sell
stocks not based on what happened yesterday or what is happening today, but
rather based on their expectations for the future (6-12 months ahead).

So, basically, the market is signaling that on a whole (i.e. weighted average
growth of all the companies in the S&P 500) things (i.e. revenue/eps) aren't
going to get dramatically worse and potentially going to get increasingly
better.

~~~
matthewdgreen
The stock market is signalling that it believes 6-12 month revenue
expectations for the S&P 500 today [14.7% official unemployment, consumer
spending trashed, entire sectors facing months of uncertainty] are roughly the
same as they were in October 2019 [3.6% official unemployment, consumer
spending rising]. This does not seem a logical conclusion, and so people (in
this thread) are asking whether the market is functioning correctly.

~~~
JoshuaDavid
Where are you getting the "6-12 month" number for how the revenue expectation
ties to stock price?

~~~
matthewdgreen
My comment was just a response to the theory in the parent comment.

------
Mikeb85
Current price = future price. Principle of economics and pricing. Meaning an
asset is priced according to what someone thinks it'll be worth in the future.
Let's also not forget the massive sell off in the markets not too long ago.
And as someone else said, there's also nowhere else to put money. All these
are reasons why people would buy into the market right now. Or hey, it also
could just be a dead cat bounce...

------
busymom0
Stock market reflects hope of future, not present.

Jim Crammer also talks how Stock market is built from big companies like
Walmart, Amazon etc which don't get negatively impacted by COVID (they do even
better). It's the small businesses (which aren't public on stock market) which
are suffering:

[https://www.youtube.com/watch?v=9G5I6oikAYA](https://www.youtube.com/watch?v=9G5I6oikAYA)

~~~
anm89
Then why do prices swing wildly on earnings days?

This is not an invalid statement but its a very incomplete understanding of
markets.

------
ergocoder
I notice that modern companies don't pay dividend anymore.

They optimize for growth and survival, which makes sense.

Google and Apple have so much cash that they wouldn't really need to make
money for years, and they would still survive.

Paying dividend is kinda okay, at best. Buying back stock is a bit better. The
best is to just keep th cash.

Don't get me wrong. As a shareholder, I like it. But it's bad for the company.

~~~
mrep
What? Most companies do return money to shareholders and for your 2 examples,
Apple returned 81 billion dollars to shareholders last year [0] and Google
started a 25 billion dollar buyback last year [1].

[0]: [https://www.barrons.com/articles/apple-stock-buyback-
dividen...](https://www.barrons.com/articles/apple-stock-buyback-dividend-
earnings-multiple-yield-51578342838)

[1]: [https://www.businessinsider.com/google-2q-earnings-beat-
stoc...](https://www.businessinsider.com/google-2q-earnings-beat-stock-price-
reaction-25-billion-buyback-2019-7)

~~~
ergocoder
Buying back is still better than dividends. Because you get stocks back.

The point is companies now save a lot of money for growth and survival.

------
xienze
Rallying is a relative term. It’s been going sideways around 24K (Dow) for
weeks.

But the answer is: where else are you going to put your money?

~~~
icedchai
Look at the Nasdaq. It's come back much faster than the Dow.

~~~
MattGaiser
Companies on the NASDAQ like Amazon are doing tremendously well.

------
submeta
Not many alternatives. Interests almost zero or even negative. - How else are
we supposed to save for the retirement.

------
mikorym
I currently work in finance, and particularly with dividends, and my opinion
as a casual observer is that a prudent investor looks for stability. So, the
key is not whether you can find the strongest performance, but that you can
predict better how things are changing.

Two months ago everyone was waiting to see what would happen. Now the chips
are starting to fall and investors can act accordingly. A simple example is
that agriculture is now seen as a more stable investment where, especially in
South Africa, it's actually a high risk business. But it is much less risk now
in comparison to hospitality.

The only other reason I can see for (perhaps premature) quick rallying is with
today's technology you can move around investments much more quickly and hence
corrections and speculation are all sped up in terms of their time frames.

------
socrates1998
I think for the most part, it's this idea that things will go back to normal
soon. And there wasn't anything structurally wrong with the economy like it
was in 2008. Right now, the hardest hit people are mainly people with zero
stocks (bartenders rarely have a decent portfolios).

The Fed has made bonds and savings almost worthless with all the money being
pumped into the economy, so why not try to get in on this opportunity?

I think this all fools gold. We are going to hit 20% unemployment and earnings
are going to take a massive hit. The stock market might not tank, but it also
could break even.

At the point that people think the stock market isn't worth the risk, that's
when you will get another big sell off.

In a weird way, both shorting stocks and going long stocks are both very risky
positions right now.

------
zelly
The market is pricing in the Fed buying equities if it gets too bad. The
market consensus is that there could be 30% unemployment but ATH prices in the
S&P 500 because of the Fed buying. If the Fed refuses to do this, then reality
will set in for the market.

------
x3blah
"Goldman Sachs Group Inc. analysts have been tracking varied measures such as
gas demand, Starbucks mobile application downloads and traffic in restaurants
as measured on the reservation website OpenTable for signs of a recovery."

OpenTable data

[https://docs.google.com/spreadsheets/d/e/2PACX-1vRbPuAyJy74U...](https://docs.google.com/spreadsheets/d/e/2PACX-1vRbPuAyJy74UmbF6kLXFGXDk2eX3N6zvRLzxPamG8FAA3E-SVqMOMSIht-
eYEF_4qrNGOJuPbDjTsPD/pubhtml?fbclid=IwAR2ku0phyu1HpFeKTj2vTfoPvnDwx7gJUFOA635STJQhaZ7DHMqDqTa3HQI#)

------
unusual_whales
A lot of this also seems to be insider knowledge. It is said that QE is the
greatest wealth transfer tool on the earth. I truly believe that.

If you look at who the stimulus is meant to support, it isn't the mom/pop
shops (which incidentally is good for the stock market as the companies get
bigger).

I tried to capture this unusual insider activity here:
[https://twitter.com/unusual_whales](https://twitter.com/unusual_whales)

If you look at the companies that are "growing" or have calls, it is always
those supported by the government. Take note!

------
robodale
The (US) stock market collectively "thinks" the economy will pop back up
relatively soon (Q4-ish, 2020). If that rosy picture in the stock market's
mind turns out incorrect, then rally go bye bye.

------
IAmGraydon
Could it be that despite everyone freaking out, the wisdom of the crowd (the
market) is pretty sure everything is going to be OK? It's possible that the
market is the only thing acting rational right now.

~~~
TheOtherHobbes
Markets can stay irrational longer than they can stay solvent.

"The wisdom of the markets" doesn't exactly have an inspiring track record.

------
darepublic
If the fed backs the market up to the point of total civilization collapse
then makes sense to keep backing the market since if it gets to the point
market fails money will lose its value anyway??

------
fallingfrog
The fed can step in and bail out Wall Street by printing money only so many
times. Eventually by papering over the small disasters, they make the eventual
collapse of the whole system a certainty.

------
fifticon
My uninformed guess is that the unemployment is a contributing factor.
Consider the act of huge workforce reductions just before a shareholder
earnings call. The math shows huge revenue (built with the workforce you had
until recently), offset by greatly reduced salary costs. The recent enormous
layoffs, possibly has such a "heating with the wall paneling" effect. If so,
it's a sort of dead-cat-bounce, given that it's hugely unsustainable - you'll
soon be out of wall paneling.

------
fsflover
See also:

[https://news.ycombinator.com/item?id=23116055](https://news.ycombinator.com/item?id=23116055)

Ask HN: What the heck is going on with the stock market?

------
cosmojg
"The stock market is not the economy, and the economy is not the stock
market." [1]

The stock market looks to the future while common economic indicators like GDP
and unemployment rates look to the recent past.

[1]
[https://youtube.com/watch?v=0ECqDaPjjV0](https://youtube.com/watch?v=0ECqDaPjjV0)

------
lokl
Several comments here about alternatives to stock, the poor returns of bonds,
and cash being eaten by inflation. If you've been thinking about this and are
a U.S. investor, read about I Bonds. Or, if you aren't worried about inflation
and are investing for 20+ years from now, don't forget about EE Bonds.

~~~
seibelj
IBonds are linked to the government-approved CPI and the basket no longer
represents “true” inflation which, in my opinion, should include the
increasing cost of housing, education, medical insurance, etc. rather than
cheap stuff outsourced to foreign countries to manufacture.

~~~
lokl
I am also concerned about this, especially medical costs. What alternatives
better track this type of inflation?

------
neonate
[https://archive.md/WOit5](https://archive.md/WOit5)

------
eruci
Little else to do while sitting at home with some spare cash other than
gambling at the stock market.

------
mirimir
> Gains in U.S. stocks accelerated Friday after April’s nonfarm payrolls
> report showed unemployment rose to 14.7%, the highest level on record.

Aren't stock prices generally proportional to unemployment level? Maybe
because low unemployment pushes wages up?

------
talkingtab
It would make sense if the stock market was a self-organizing Ponzi scheme.
Let's say I have $10 million in the stock market. I know that if I sell as the
market is going down, I may well encourage other people to sell. The market
may plunge and all of my stock will be worthless. If I buy at a crucial time -
when the market has paused in the process of dropping, I may well influence
the market to go up instead.

The greater my fear of a market panic, the more likely I am to try to steer
the market - if there is a panic it is game over. The more I have invested in
the market, the more influence I can exert. If I know other players are also
pursuing the same strategy we can begin to act in unison.

This can also be explained by techno-babble, but if it is true that 10% of the
population controls 86% of the stock, then anyone would be a fool not to play
this way.

~~~
esoterica
> I know that if I sell as the market is going down, I may well encourage
> other people to sell. The market may plunge and all of my stock will be
> worthless. If I buy at a crucial time - when the market has paused in the
> process of dropping, I may well influence the market to go up instead.

That is simply not how the market works. Trying to buy when the market has
"paused" is not going to trick the other market participants into thinking
that the market has bottomed out and the crash is over and that everyone
should start buying again. Volatility in a bear market is normal, and the
stock market going up for a couple days in the middle of a crash is not going
to convince anyone but the most gullible retail traders that the crash is
definitively over.

> but if it is true that 10% of the population controls 86% of the stock

10% of the population is 30 million people.

------
peter303
Basic monetary explanation: The current 'rescue' has pumped $6 trillion via
CARES and Fed asset purchase. Some of it is competing for the only thing going
up- not goods, not wages, not bonds, but stocks.

------
fortran77
The stock market is still down from its 2020 high point. So this means that
the initial drop was an overcorrection according to the all knowing "market".

------
ageofwant
90% of all stock trading the last 19 years was company buybacks. The fed has
one job: liquidity.

Mark Blyth's various commentries the last few weeks are very enlightening.

------
garrickvanburen
the stock market aggregates bets on tomorrow. We want bets that tomorrow will
be better. Though, I agree it looks more flat currently (cautiously
optimistic?).

------
hop
It’s rallying because there are a lot of undervalued stocks. There have been
really good deals the past 2 months. And stocks are a great inflation hedge.

------
new_realist
Monetary stimulus almost completely explains the irrationality of the equity
markets.

------
lowdose
Because the recent economic stimulus didn't trickle down to the people that
needed it. At least 80% of it ended up in the pockets of people that don't
live from paycheck to paycheck and a after night sleep they decided to buy
stocks instead of letting the value rot on their lousy bank account.

~~~
mrep
Have you read the CARES act? Pretty much all of the freely given out money
goes out to citizens directly through checks/increased unemployment or
indirectly by paying for payroll. The other handouts are for things like
healthcare. The rest is mainly in loans that will get payed back.

------
jackallis
and yet nobody talks about democratization of investing. It is now so easy to
invest that anybody, without having to think about yikes i dont want to spend
$10 buying it, can invest in 10 minutes.

------
afpx
Investors assume that the public will bail out failing industries.

------
watertom
Because the stock market has nothing to do with the economy.

It’s a tax reduction for the rich, and a way to “manufacture” money for the
well connected, like politicians and their friends and families.

------
trhway
the newly printed $6T need to be absorbed, and the interest rate is low, and
no new assets is produced, thus stocks and real estate.

------
atlgator
Inflation has been hidden since the Obama years of quantitative easing due to
globalization. You can pump cash into the market and, if you keep the cost of
consumer goods low by outsourcing to 3rd world labor, the CPI doesn't
increase. Meanwhile, the cost of items that are produced here, e.g. homes and
cars, skyrockets. Trump has continued the trend of pumping the market and
accelerated it in the last few months at an alarming rate. Problem is,
globalization is decreasing as countries isolate. No place to hide the
inflation. The stock market will continue to increase despite the bad news.

------
betterworldb
Is there a way to read this without paying?

------
dnprock
This article lists 5 reasons:

1\. Bets on a “V-Shaped” Recovery

2\. Market Leaders Keep Rising

3\. Corporate-Earnings Expectations Remain High

4\. Old Habits Die Hard

5\. The Fed’s Backing

The market misses an important point: a solution to the Coronavirus threat. It
could be a drug, a vaccine, tracing technology. We don't know. The virus can
also go away on its own. The market predicts this threat is somehow going
away. But I can't predict.

------
chewz
It is not stock market rallying - it is your dollars rapidly loosing value..

------
legobridge
I'm new to reading paywalled articles and the HN FAQs said it was ok to ask
for help in the comments. Can someone please help me out? I really want to
read this article.

~~~
OatsAndHoney
Apple News, it's the cheapest way to get the WSJ, or subscribe to WSJ on their
website.

------
madengr
What do they mean by rallying? The S&P is down 10% from the start of all this
crap. My 401k is down a little more than that.

Sure, it’s higher than 1 month ago, but may take 2 years to recover.

------
Sindrome
Eat the rich

------
Eliezer
I can't see the article because paywall, so out of grim curiosity: Do the
journalists (at the so-called "Wall Street Journal") get through the whole
article without mentioning _once_ that "Stocks react to changed forecasts as
events become predictable, not to events as they play out the forecast" or
"Stocks discount the next 20 years of revenues, not revenues this year"? Has
economic illiteracy progressed that far? Or is there yet a tiny redoubt of
econoliteracy somewhere in the newspaper?

------
Causality1
After five decades of deliberately severing worker compensation from worker
productivity, the stock market is now just a barometer for rich people
feelings. When they're feeling good it goes up, when they're feeling bad it
goes down.

------
LatteLazy
Why do people write article with false premises just to make readers click and
state opinions and argue? Oh yeah, it's click bait bullshit.

