
Ask HN: What the heck is going on with the stock market? - cs702
There are so many smart and well-informed individuals on HN.<p>I would love to hear their -- your -- thoughts on this:<p><pre><code>  EVERY ECONOMIC INDICATOR          STOCK MARKET
  +----------------------+    +----------------------+
  | \                    |    |                   _&#x2F; |
  |  |&#x2F;\                 |    |                 _&#x2F;   |
  |     \                |    |               _&#x2F;     |
  |      |  &#x2F;\&#x2F;\         |    |              &#x2F;       |
  |       \&#x2F;    \        |    |             &#x2F;        |
  |              \&#x2F;\_    |    |      &#x2F;\&#x2F;\  &#x2F;         |
  |                  \   |    |     &#x2F;    \&#x2F;          |
  |                   \  |    |  &#x2F;\&#x2F;                 |
  |                    | |    | &#x2F;                    |
  +----------------------+    +----------------------+
  
</code></pre>
Sample economic indicators in the US:<p>https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;WEI<p>https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;ICSA<p>https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;PCEC96<p>https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;DFII10<p>https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;UNRATE&#x2F;<p>Stock market cap to GDP in the US:<p>https:&#x2F;&#x2F;www.longtermtrends.net&#x2F;market-cap-to-gdp&#x2F;
======
he11ow
This depends on which stock index you're looking at. If it's the S&P 500, it's
a cap-weighted index. 20% is made up of 5 companies: Microsoft, Apple, Amazon,
Alphabet and Facebook [0].

These 5 companies are doing, by and large, incredibly well right now. Even if
ad revenue is down, the lock-in is sticky at least to some extend beyond the
very near term. So now if you look at the Dow Jones (which is not weighted-
cap), it's up 2.2% in the past month, compared with the 4.8% of the S&P.

That said, the market is not rational, and I'd be wary of thoughtful
statements like "investors think...". With the Fed pumping so much money into
corporates (via banks), the cost of capital falls. If the government tells
you, you can borrow up to your eyeballs at near zero rates, and we'll probably
find a way to bail you out if you're big enough (=too big to fail), that's
exactly what you'll do.

Once you've borrowed, you're not just sitting on these piles of cash, you'll
invest some in operations, but ultimately what your board of directors wants
to see is your stock, so you're going to use the money to buy back your
shares. Your company is not materially better in any way, it operates pretty
much as before but with lots of debt, but its stock price has gone up-up-up:
execs get their bonuses, the board is happy, shareholders are happy.

This can go on for a long time. We've had the longest bull run in history -
over a decade long - propped up this way.

[0]
[https://markets.businessinsider.com/news/stocks/sp500-concen...](https://markets.businessinsider.com/news/stocks/sp500-concentration-
large-cap-bad-sign-future-returns-effect-market-2020-4-1029133505?op=1)

~~~
whatok
> This depends on which stock index you're looking at. If it's the S&P 500,
> it's a cap-weighted index. 50% - not a typo - is made up of 5 companies:
> Microsoft, Apple, Amazon, Alphabet and Facebook.

I think you need to check your math on that. It's way off. I haven't read the
rest of your post but if anything else in there is based on this error, it's
also wrong.

[https://www.ssga.com/us/en/individual/etfs/funds/spdr-
sp-500...](https://www.ssga.com/us/en/individual/etfs/funds/spdr-sp-500-etf-
trust-spy)

~~~
he11ow
You're right, was looking at a different dataset. The correct number is 20%

------
rococode
I don't think anyone knows for sure, but imo these are 3 possible reasons (all
of which are flawed and can't explain it entirely):

1\. All of these declines were "priced in" (which frankly is a bit of a meme
now) and they ended up not being as bad as expected. If there's there's a
record new unemployment claims of 6m but the expected number was 10m then the
market will love it and go up even though it's the worst in history.

Counterargument: The economy is still fundamentally weaker, so while we can go
up when things aren't as bad as expected, we shouldn't be recovering as much
as we have.

2\. Technically the stock market is a predictor of future returns, and I guess
many investors are confident that most of the major companies will survive and
continue making big bucks in the future. People don't feel the same way about,
for example, the airlines, which is why they have not made nearly as much of a
recovery as the rest of the market. If the long-term impact for most companies
is just -2 years of revenue and then everything is back to normal, it's almost
negligible in the long run.

Counterargument: Well-run big corps can probably survive a 2-year loss of
revenue (and it'll probably be less than that in reality), but many SMBs can't
and will close. Waves of SMB customers closing would obviously have long-term
implications for all corporations.

3\. Governments worldwide are going all out to prevent a collapse of the
economy. If the government will literally just pump out money to save the
economy, then why should the market bother going down at all when it can just
keep going up and take all those free government bucks?

Counterargument: A huge amount of money being injected into the economy for
free doesn't seem healthy for the economy. Right now there's deflation because
of reduced demand, but we could see major inflation since those dollars are
out and in circulation now. And actually, the rise in stock prices maybe
already reflect incoming inflation.

------
LatteLazy
Two reasons:

First:

The S&P crashed from ~3300 in Feb to ~2200 in Mar.

Now it's at ~2900.

But 2900 is less than 3300.

So why do people keep acting like it's gone up? It hasn't.

Second:

The stock market is all about what (people think) tomorrow/next month/next
year will be like. So it should crash on bad news ABOUT THE FUTURE and go up
on good news ABOUT THE FUTURE.

But economic indicators are all ABOUT THE PAST.

It's generally best to BUY stocks when a recession is declared because a
recession isn't declared until the economy has shrunk for 2 quarters. Since it
takes time to get those numbers ready, that means when a recession is
declared, you've been in a recession for 8+ months already (2m for the figures
plus 6 months of shrinking GDP). So you're most of the way through it.

When a commentator says "we're in a recession", the market says "yeah, we
know, we knew 7.95months ago, but we're going to return to normal in ~3months
so either buy now or be priced out later".

This is pretty much it.

------
doublejay1999
My opinion is that this is principally a chronic FOMO market.

People can speculate on levels, relative rises, falls, performance over the
last years....I don't think there's much right or wrong with that....but it
doesnt explain why there's soo much money around for equities.

i think is a combination of :

\- fed promised unlimited money from the money printer. (Anncounced by the fed
on 23rd March.

\- it is election year, with a siting pres who hangs everything on the
markets, a couple of tweets from Pres, Musk, Tim Apple etc...can add 10% to
market overnight. No one wants to miss that.

\- there are few other attractive places for peoples money. People want them
big gains, which are perceived as being still on the table.

i'd speculate the mass lay offs will protect company results for a couple of
quarters, maybe more, but the buck stops when there are no consumers left to
buy shit - and that's what's down the line IMHO.

~~~
sloaken
I agree, you combine that with memories of March 2009. Everybody is hoping
that we have hit bottom already and there is nowhere to go but up.

------
elamje
Not a huge fan of twitter threads unless they are extremely concise and
interesting. This person has a very interesting, short story to tell about
stocks.

[https://twitter.com/calvinfo/status/1254635755671969793?s=21](https://twitter.com/calvinfo/status/1254635755671969793?s=21)

------
keiferski
The stock market doesn’t, and never has, represented the entirety of the
economy. This was already obvious if you think about it: black markets and the
illegal economy (including tax evasion, drugs, cash-only payments in the food
service industry, etc.) aren’t reflected in the stock market either, yet make
up a gigantic proportion of economic transactions.

------
trcollinson
As a few people have said, the stock market isn't necessarily the indicator of
the entire economy. One other thing to keep in mind is that the Dow Jones
Industrial Average has 30 companies in it. And the S&P 500 has, well, 500
companies. The point is that you are looking at composite indexes of companies
on the market, not the entire market. And those companies have access to, what
many consider, the largest weapon to help them rise over the next few year.
Very very very inexpensive debt through a near 0% interest rate from the
Federal Reserve (and other international reserves). Many of the large
companies in the world will come out of this stronger than ever. Cheap debt is
one of their favorite things to have.

Small business will go under. Keep in mind that a lot of those small
businesses were going to go under anyway, this is just speeding up the process
and potentially keeping them from getting more debt before they go under.

As for unemployment, many economists believed that our unemployment rate for
the last few years was actually too low. Now, it is probably too high. Though
we only have a few weeks of that unemployment to measure and this isn't the
time for predictions. We need to stabilize the economy then look at the
stability of unemployment. An economy this large takes some time to predict.
Economists generally don't start making trends with only a few weeks of data.

I have lived through a few of these downturns. This is not the first by any
means (2008/2009, 2000, 1987, the 1970's). My historical guess is in 18 months
you are going to see unemployment much lower, the stock market will hit new
highs, and people will be generally extremely afraid of what happens when the
Fed starts to itch to raise the interest rate above 0%. Whichever party is in
office in the US will take a lot of credit for "fixing everything" and blame
any negative effects (like raising the interest rate, homelessness, income
gaps and disparity) on the other party. And a lot of people will think things
are wonderful.

The question really is, are they wonderful at that point?

------
mrgreenfur
Krugman addressed this a few days ago:
[https://www.nytimes.com/2020/04/30/opinion/economy-stock-
mar...](https://www.nytimes.com/2020/04/30/opinion/economy-stock-market-
coronavirus.html)

He basically says the economy is not the stock market and there aren't a lot
of better places to put cash to grow it.

------
eswat
The economy ≠ the stock market

Investors are expecting things to get better in the future and pricing stocks
based on that.

------
billconan
from 2 weeks ago
[https://www.youtube.com/watch?v=0ECqDaPjjV0](https://www.youtube.com/watch?v=0ECqDaPjjV0)
a video to explain this

------
jasonv
The reality of the situation hasn't been acknowledged in a lot of arenas.

