What the heck is going on with the stock market?

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...

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.

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.

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.

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

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.

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?

Krugman addressed this a few days ago: https://www.nytimes.com/2020/04/30/opinion/economy-stock-mar...

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.

The economy ≠ the stock market

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

from 2 weeks ago https://www.youtube.com/watch?v=0ECqDaPjjV0 a video to explain this

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