
Ask HN: What is going on with the US stock market? - scottporad
Explain me this: the US stock market is at an all-time high <i>and</i> US unemployment is at depression era levels.  How is this possible?  It doesn’t make sense to me.
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throw51319
Since most of the money went into the hands of big companies, rich people,
etc... that means that the price of assets they usually buy into are going to
inflate.

Basically if you have nowhere good to put your money, you'll just throw it
into stocks.

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maxharris
The stock market goes up when _expectations_ are exceeded, and it goes down
when they aren't.

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uberman
Some believe that stock market investors are not rational. Some believe that
all trades necessarily involve an adversary called "Greater Fool" and that
both parties believe the other is this fool.

I think the reality is that many investors sell when they think they hear bad
news and buy when they think they hear good news. It does not matter anymore
(if it ever did) what the net present value of all future profits is.

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jlukecarlson
The stock market is not a direct reflection of how healthy the US economy is
at large. As others have mentioned, gains in the stock market are being driven
by a select group of companies that investors believe are poised to seize an
advantage during these times.

This advantage can be a product that is well positioned for this situation
(Zoom, Slack, Amazon), having large cash reserves to weather the storm and
potentially buy competitors (Uber with UberEats + Grubhub), or a myriad of
other reasons. Not many of which apply to companies in the wider economy.

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cwhiz
The market is not much more than a collective guess as to where things are
heading. The market today is a reflection of where investors think things will
be in the future. That’s why the market tanked before the economy did and why
it is up before the economy actually recovers.

It’s also totally irrational, might be rigged by the fed, and is almost
certainly a glorified ponzi scheme.

The reason it shot up yesterday and this week is because the unemployment
numbers for May were better than expected. There are numerous reasons to be
skeptical of this data but, like I said, the market isn’t rational.

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pryelluw
Money is still cheap. Companies got a bailout from COVID-19. The current
administration puts profits over people.

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whb07
A couple of companies dominate the indexes: Apple, Microsoft, Google, Amazon,
FB etc. They will do good no matter what, and are helped by "staying at home".
So theres 90% of your answer.

In another obvious blunder by government ruling, the big companies that are
publicly listed have had their competition literally shut down. So imagine
you're a small hardware shop, well sucks to be you, because the government
deemed you "unessential". Whereas Walmart has been left open because they sell
food and hey wouldn't you know it, they also sell hardware items as well! What
is better than having to compete for business? Have the government mandate
your competitors out of business for you.

Then by that same token, do you expect to fly somewhere in the next 3 years?
Do you expect people will buy cars and drive? Do you expect them to still use
banking services?

If so wouldn't you want to buy the stocks now ? What does this forced shutdown
and not-so-deadly-virus-that-we-were-scared-of have to do in 5 years from now?

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laurentl
Matt Levine (Bloomberg) gives a convincing explanation in a recent newsletter:
[https://www.bloomberg.com/opinion/articles/2020-06-01/stocks...](https://www.bloomberg.com/opinion/articles/2020-06-01/stocks-
are-trying-to-forget-2020)

In a nutshell, he argues that stock price is a reflection of the long-term
value of a company (“the present value of the company’s expected future
earnings”, which is what stock price _theoretically_ is). With low interest
rates, the bad results of 2020 are drowned out by the expected return to
normal earnings in the coming years.

> A pandemic crushes revenues. Stocks fall on general uncertainty and a fear
> of financial crisis and widespread bankruptcies, which would wipe out
> profits in perpetuity. The fears of financial crisis are resolved, more or
> less by the Fed and Congress pumping money into companies to prevent panic,
> so the bankruptcy risk is more contained. Stocks return to a price level
> that suggests a terrible year, followed by mostly normal.

As an aside, I highly recommend subscribing to his _Money Stuff_ newsletter.
Entertaining and pedagogical, it’s a great way to learn about the theory,
inner workings and quirks of modern finance.

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shoo
> [...] the graph below plots US stock market returns against real GDP growth
> in the United States, using quarterly data [from 1960 to 2020] Note that
> there is almost no correlation between stock returns and real GDP growth
> contemporaneously, and while the correlation grows as you look at GDP is
> subsequent quarters, it is still modest even four quarters ahead. If the
> relationship between stock returns and measures of economic activity is
> weak, as both logic and the data suggest, it should be even weaker right
> now, where every measure of economic activity is ravaged by the crisis-
> driven shutdown. To those in the media and the investment community who
> profess to be shocked by the latest economic numbers, my question is whether
> you are just as shocked to see your speedometer at zero, when your car is
> parked in the driveway, or when your pie does not bake in an oven that is
> not turned on? In short, there is almost nothing of use to investors from
> poring over current macroeconomic data, which is one reason why markets have
> started ignoring them. That will change, as the economy opens up again, and
> markets start looking at the data for cues on how quickly it is coming back
> to life.

> My estimated value for the [S&P 500] index is about 2926, which would lead
> to a judgment that the index was over valued by about 6% (based upon the
> level on June 1, 2020). As with my March 2020 valuation, I am fully aware
> that my numbers are just a reflection of my story and that each of the
> inputs has a range around it, and I have brought in that uncertainty into a
> simulation below [...] Note that I have centered the simulations around the
> median estimates of earnings for 2020 and 2021 from analysts, while building
> in the range in the estimates into the distributions. The median value from
> the simulation is 2932. On June 1, the S&P 500 was trading at close to 3100,
> putting it near the 80th percentile of the distribution, bolstering the
> "market has gotten ahead of itself" camp, but there is something here for
> everyone. If you are more optimistic about earnings in 2020 and 2021 than
> the the median analyst, and about how quickly and completely the market will
> recover from the crisis shock, you will arrive at a higher value than mine.
> If you are more pessimistic about the future, perhaps because you think the
> market is under estimating the likelihood of a second wave of shutdowns or a
> surge in company defaults, your valuations will be much lower.

\-- Damodaran , [http://aswathdamodaran.blogspot.com/2020/06/a-viral-
market-u...](http://aswathdamodaran.blogspot.com/2020/06/a-viral-market-
update-ix-do-it-yourself.html)

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tfleming
There's a guy by the name of Lee Adler at liquiditytrader.com that does a
great job of explaining all this financial market stuff. One thing that he
always says is "Don't fight the Fed". The Federal Reserve was pumping billions
of dollars per day to stop the market from falling. Now it sounds like
leverage is taking the market to extreme levels again, while the Fed is
quietly pulling back its support. Nothing good is going to come out of this.

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zw123456
Yes, sometimes the vagaries of the stock market can be confounding. But the in
addition to expectations already mentioned, investors often compare the
potential return from stocks vs. other investments primarily interest bearing
such as bonds. If interest rates are very low, then stocks will be more
attractive. Right now, the Federal Reserve is maintaining a very low interest
rate to help combat a possible recession due to the covid19 crisis. I think
the low interest rates is also one major factor (although there are a lot of
others).

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nicholas73
Yes we should remember that stock markets pale in size compared to bond and
currency markets. Money leaving another market can buoy stock markets in a way
that is almost mechanical, separate from attempting to value individual
stocks.

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scottporad
Would love to hear your points of view on this!

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netman21
And another question: How can the Fed/Treasury pump Trillions of dollars into
the economy with apparently zero concern for inflation? My grade school
understanding is that every dollar "printed" devalues all the money by that
amount. I buy silver shares thinking it will go up with all this increased
money supply. But no.

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kyshoc
I don’t know much more than you on this, but I’ve seen this explained as such:
inflation requires the injected money to actually be circulated in the economy
in order to dilute the value of the currency. of the money distributed to
companies and individuals during the pandemic, how much of it went to
everybody’s “rainy day funds” and war chests? Most folks I know that are on
unemployment right now have touched <20% of their funds, and Americans just
hit a record savings rate[1] last month. Schwab has an article[2] that
explains the monetary effects of this better than I.

[1]: [https://www.cnbc.com/2020/05/29/us-savings-rate-hits-
record-...](https://www.cnbc.com/2020/05/29/us-savings-rate-hits-
record-33percent-as-coronavirus-causes-americans-to-stockpile-cash-curb-
spending.html) [2]: [https://www.schwab.com/resource-
center/insights/content/stim...](https://www.schwab.com/resource-
center/insights/content/stimulus-inflation-why-it-may-be-different-this-time)

