What explains the continued rise in equities?

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anoop
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Re: What explains the continued rise in equities?

Post by anoop »

At the FOMC meeting today, the last question was about what Powell's advice would be to savers who are affected by ZIRP. Powell's response:

- Living off interest in a savings account not a good idea.
- If you own a house, that's going up in price.
- If you have a 401k, that's going up too. (He's probably not talking about my 401k which is 100% money market.)

He expects fed support to continue and even increase until employment normalizes. Which pretty much means Dow 100K, S&P500 at 10K by the time we get there, possibly higher.

Basically his message was to buy as much stock and real estate as you can.

This is a one time opportunity for plundering while Rome is burning.
Last edited by anoop on Wed Apr 29, 2020 4:07 pm, edited 1 time in total.
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TechGuy365
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Re: What explains the continued rise in equities?

Post by TechGuy365 »

Positive earning announcements by mega techs this week (and expectations last week). Google announced positive results last night and GOOG was up 8.7% today. FB and MSFT both just announced today (Wednesday), both beating expectations, so FB is up 10% and MSFT up 4.5% in after-hours trades.

MSFT, AAPL, AMZN, GOOGL, FB now makes up 20% of S&P 500 and looks like COVID-19 and general economy has minimum impact on their revenue. It's the mega cap, tech or otherwise, that's leading the charge.
Mrmetalpole
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Re: What explains the continued rise in equities?

Post by Mrmetalpole »

Trillions of investment dollars need to go somewhere and with interest rates at zero and the Fed pumping in 100s of billions, where are the pensions, hedges, institutions, family offices and retail all gonna go? Couple the “Don’t Fight the Fed” backdrop with conventional thinking being not to sell on downturns based on history and here we are for now.

All this said earnings can be greatly affected if the recession and high unemployment are prolonged which I see happening as death count (Currently low 60s) trends toward 100-200K this summer. Couple this with the absolute hysteria of next flu season and the contentious election, and I think we hit new lows this fall before a new bull market can start - post-vaccine. Hope I’m wrong on all the negatives.....But that’s how I see it at least right now in the absence of a vaccine and/or therapeutic.
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eye.surgeon
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Re: What explains the continued rise in equities?

Post by eye.surgeon »

1. as stated above, the market is not the economy
2. if you turn off the news and actually look at the facts, this is a temporary problem with a fairly definable end point that is in the US at least mostly focused in a 100 mile radius of NYC which is further away to me in California than, say, Belize. I realize this will trigger the doomsayers on the internet.

That's my opinion and it's worth about $0.02.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett
Flashes1
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Re: What explains the continued rise in equities?

Post by Flashes1 »

It sounds like somebody might be sitting on a pile of cash trying to time when to put it in equities.

If you have a +10 year perspective, why do you care about what the market's done in the past 10 trading days? The market doesn't care if you think it's overvalued.
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Gort
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Re: What explains the continued rise in equities?

Post by Gort »

Independent George wrote: Wed Apr 29, 2020 12:13 pm Aliens.
Most likely. :happy
Sic Vis Pacem
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Re: What explains the continued rise in equities?

Post by Sic Vis Pacem »

Teague wrote: Wed Apr 29, 2020 3:43 pm I firmly believe that there are three main reasons which explain the current market behavior.

Unfortunately, I have no idea what they might be.
+1
Mrmetalpole
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Re: What explains the continued rise in equities?

Post by Mrmetalpole »

Flashes1 wrote: Wed Apr 29, 2020 4:27 pm It sounds like somebody might be sitting on a pile of cash trying to time when to put it in equities.

If you have a +10 year perspective, why do you care about what the market's done in the past 10 trading days? The market doesn't care if you think it's overvalued.
Don't assume I care :)..... and also never said market was overvalued....you did, I just happen think it's going lower before its going higher. That's called an opinion and/or prediction, something people sometimes do on financial message boards. I hope you get over it.
CurlyDave
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Re: What explains the continued rise in equities?

Post by CurlyDave »

Flashes1 wrote: Wed Apr 29, 2020 4:27 pm ...It sounds like somebody might be sitting on a pile of cash trying to time when to put it in equities...
The Fed just said it will target 0%.

If anyone wants a higher return, equities are where its at.
langlands
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Re: What explains the continued rise in equities?

Post by langlands »

TechGuy365 wrote: Wed Apr 29, 2020 4:05 pm Positive earning announcements by mega techs this week (and expectations last week). Google announced positive results last night and GOOG was up 8.7% today. FB and MSFT both just announced today (Wednesday), both beating expectations, so FB is up 10% and MSFT up 4.5% in after-hours trades.

MSFT, AAPL, AMZN, GOOGL, FB now makes up 20% of S&P 500 and looks like COVID-19 and general economy has minimum impact on their revenue. It's the mega cap, tech or otherwise, that's leading the charge.
Basically this. This is not a uniform rise in equities, and one reason to be less skeptical about this run-up. Lots of people are saying "there are 20 million people out of work, economy is in the doldrums, how can S&P 500 be only down 10% from all time highs." Well there are a lot of companies. Delta airlines is still more than 50% off its February highs, accurately reflecting its grim prospects. Big tech is doing much better, accurately reflecting their brighter prospects. Market weight everything and you get the S&P 500 price. You could argue there is some over-optimism, but there is a reasonable justification for the valuation and it's not as ridiculous as it might first seem.
Call_Me_Op
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Re: What explains the continued rise in equities?

Post by Call_Me_Op »

bigskyguy wrote: Wed Apr 29, 2020 11:59 am I am trying to get my head around the recent and rapid rise in equities over the last few weeks. In the face of what can only be described as brutal economic conditions worldwide, why in the world should equities be priced for perfection? And the only logical reason that I can surmise is that when it comes to future returns, nothing else seems better. For me, the only logical conclusion is that forward earnings, be they from stocks, fixed income investments, or real investments, should of necessity be dismal. Strikes me that all indicators suggest economic stagnation for as far as the eye can see. There are no good investments for future returns, just less bad ones.
I would really appreciate to hear from each and every one of you on this forum how you see this present moment?
Not sure why you feel the need to "understand" the market. The market's value is based upon the opinions of millions of independent investors. The least taxing approach to it is to put some money in and let it ride, rebalancing along the way. I don't think there is much to gain by trying to rationalize its behavior.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
reln
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Re: What explains the continued rise in equities?

Post by reln »

bigskyguy wrote: Wed Apr 29, 2020 11:59 am I am trying to get my head around the recent and rapid rise in equities over the last few weeks. In the face of what can only be described as brutal economic conditions worldwide, why in the world should equities be priced for perfection? And the only logical reason that I can surmise is that when it comes to future returns, nothing else seems better. For me, the only logical conclusion is that forward earnings, be they from stocks, fixed income investments, or real investments, should of necessity be dismal. Strikes me that all indicators suggest economic stagnation for as far as the eye can see. There are no good investments for future returns, just less bad ones.
I would really appreciate to hear from each and every one of you on this forum how you see this present moment?
The market is more optimistic about corporate profits than you.
Last edited by reln on Wed Apr 29, 2020 5:48 pm, edited 1 time in total.
frankie1800
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Re: What explains the continued rise in equities?

Post by frankie1800 »

One has no idea but I must admit, I have been very skeptical of rebalancing into it. I have no rational reason to give as to why but some of it has to do with my misunderstanding of how money printing can continue like this without a dollar reckoning.
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bigskyguy
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Re: What explains the continued rise in equities?

Post by bigskyguy »

Flashes1 wrote: Wed Apr 29, 2020 4:27 pm It sounds like somebody might be sitting on a pile of cash trying to time when to put it in equities.

If you have a +10 year perspective, why do you care about what the market's done in the past 10 trading days? The market doesn't care if you think it's overvalued.
Not the case. My wife and I are retired, have build a Safety First investment plan that has us comfortable irrespective of the market's direction. I am 70 and do intend to be around for more than 10 years. I am simply trying to understand how one rationally drives up equities when the P/E is at abnormally high levels and the economy is closed for the near future, and likely impacted adversely for the foreseeable future. I am a retired internist and have significant concerns for the near term economy in light of a moderately aggressive virus for which herd immunity does not presently exist and won't for the next 12-24 months, and absent a reasonable expectation for adequate immunization for at least that time frame. Given the medical realities that we are facing, I don't see a rapid or near rapid economic turn around, and wouldn't be surprised if we see a slow recovery not dissimilar to what happened in the 1930s.
So with that perspective, I would truly like to know what those who are driving the market are seeing that I am not. Educate me.
TxInjun
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Re: What explains the continued rise in equities?

Post by TxInjun »

anoop wrote: Wed Apr 29, 2020 4:05 pm At the FOMC meeting today, the last question was about what Powell's advice would be to savers who are affected by ZIRP. Powell's response:

- Living off interest in a savings account not a good idea.
- If you own a house, that's going up in price.
- If you have a 401k, that's going up too. (He's probably not talking about my 401k which is 100% money market.)

He expects fed support to continue and even increase until employment normalizes. Which pretty much means Dow 100K, S&P500 at 10K by the time we get there, possibly higher.

Basically his message was to buy as much stock and real estate as you can.

This is a one time opportunity for plundering while Rome is burning.
Thank you for this summary.

As someone said in another thread, Fed says printing press go brrrrr.

TxIn
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knpstr
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Re: What explains the continued rise in equities?

Post by knpstr »

What's the alternative?

For people in 20s, 30s, 40s, that largely need growth to hit their retirement goals, they more or less have to keep putting money in equities.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
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bigskyguy
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Re: What explains the continued rise in equities?

Post by bigskyguy »

Call_Me_Op wrote: Wed Apr 29, 2020 5:00 pm
bigskyguy wrote: Wed Apr 29, 2020 11:59 am I am trying to get my head around the recent and rapid rise in equities over the last few weeks. In the face of what can only be described as brutal economic conditions worldwide, why in the world should equities be priced for perfection? And the only logical reason that I can surmise is that when it comes to future returns, nothing else seems better. For me, the only logical conclusion is that forward earnings, be they from stocks, fixed income investments, or real investments, should of necessity be dismal. Strikes me that all indicators suggest economic stagnation for as far as the eye can see. There are no good investments for future returns, just less bad ones.
I would really appreciate to hear from each and every one of you on this forum how you see this present moment?
Not sure why you feel the need to "understand" the market. The market's value is based upon the opinions of millions of independent investors. The least taxing approach to it is to put some money in and let it ride, rebalancing along the way. I don't think there is much to gain by trying to rationalize its behavior.
Are you willing to trust your heard earned resources in a market that is not understandable? Given the dollars involved, I certainly believe/hope that more than opinion is driving the market. Otherwise, we are at the mercy of the greater fool hypothesis. The reasons behind the recent movement should be able to be understood. I'm simply asking for insights.
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gmaynardkrebs
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Re: What explains the continued rise in equities?

Post by gmaynardkrebs »

Socialization of tail risk by Fed.
Valuethinker
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Re: What explains the continued rise in equities?

Post by Valuethinker »

bigskyguy wrote: Wed Apr 29, 2020 6:01 pm
Flashes1 wrote: Wed Apr 29, 2020 4:27 pm It sounds like somebody might be sitting on a pile of cash trying to time when to put it in equities.

If you have a +10 year perspective, why do you care about what the market's done in the past 10 trading days? The market doesn't care if you think it's overvalued.
Not the case. My wife and I are retired, have build a Safety First investment plan that has us comfortable irrespective of the market's direction. I am 70 and do intend to be around for more than 10 years. I am simply trying to understand how one rationally drives up equities when the P/E is at abnormally high levels and the economy is closed for the near future, and likely impacted adversely for the foreseeable future. I am a retired internist and have significant concerns for the near term economy in light of a moderately aggressive virus for which herd immunity does not presently exist and won't for the next 12-24 months, and absent a reasonable expectation for adequate immunization for at least that time frame. Given the medical realities that we are facing, I don't see a rapid or near rapid economic turn around, and wouldn't be surprised if we see a slow recovery not dissimilar to what happened in the 1930s.
So with that perspective, I would truly like to know what those who are driving the market are seeing that I am not. Educate me.
The Central Banks are pouring in huge stimulus.

Real interest rates are effectively negative.

That tends to inflate risk assets. Especially liquid ones. Hence stocks.

The fall in oil price might have a really nasty recessionary effect on US economy.
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bigskyguy
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Re: What explains the continued rise in equities?

Post by bigskyguy »

I've heard it often stated that markets hate uncertainty. Seems to me that the only certainty at present is the Fed will do what it takes, regardless. Seems that in light of the uncertainties regarding the pandemic, nothing else regarding our economy, near term and mid-term, is certain. If that is indeed the case, then the market is simply reacting to an unprecedented printing of money, which may well be necessary, but is at least for me truly alarming.
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bigskyguy
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Re: What explains the continued rise in equities?

Post by bigskyguy »

Valuethinker wrote: Wed Apr 29, 2020 6:17 pm
bigskyguy wrote: Wed Apr 29, 2020 6:01 pm
Flashes1 wrote: Wed Apr 29, 2020 4:27 pm It sounds like somebody might be sitting on a pile of cash trying to time when to put it in equities.

If you have a +10 year perspective, why do you care about what the market's done in the past 10 trading days? The market doesn't care if you think it's overvalued.
Not the case. My wife and I are retired, have build a Safety First investment plan that has us comfortable irrespective of the market's direction. I am 70 and do intend to be around for more than 10 years. I am simply trying to understand how one rationally drives up equities when the P/E is at abnormally high levels and the economy is closed for the near future, and likely impacted adversely for the foreseeable future. I am a retired internist and have significant concerns for the near term economy in light of a moderately aggressive virus for which herd immunity does not presently exist and won't for the next 12-24 months, and absent a reasonable expectation for adequate immunization for at least that time frame. Given the medical realities that we are facing, I don't see a rapid or near rapid economic turn around, and wouldn't be surprised if we see a slow recovery not dissimilar to what happened in the 1930s.
So with that perspective, I would truly like to know what those who are driving the market are seeing that I am not. Educate me.
The Central Banks are pouring in huge stimulus.

Real interest rates are effectively negative.

That tends to inflate risk assets. Especially liquid ones. Hence stocks.

The fall in oil price might have a really nasty recessionary effect on US economy.
I suspect you are correct. Don't see any other clear explanation.
WhyNotUs
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Re: What explains the continued rise in equities?

Post by WhyNotUs »

the government shoveling $6 Trillion in over two years is likely a factor
I own the next hot stock- VTSAX
sabhen
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Re: What explains the continued rise in equities?

Post by sabhen »

delete
Last edited by sabhen on Wed Apr 29, 2020 7:17 pm, edited 4 times in total.
Hoongajji
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Re: What explains the continued rise in equities?

Post by Hoongajji »

Sarcasm post.

Nobody knows nuthin...

I read this quote over and over...yack in the corner. Hazmat suit and mop, STAT.

If one knows nothing and others know nothing, what is to discuss? Nobody probably knows the answer anyway.

I will continue from my human and investment instincts.

TINA...cash is a safe alternative to plummeting markets. Mini blinds, a new fence, house paint, education, health, fitness, etc...a list of alternatives is infinite imo.

Or, buy F or CCL which may go bankrupt.

Why is the market going up?

Greed.

Irrationality.

Herd mentality.

But Hoongajji - the market is forward looking.

Then the market should have known that the COVID was only a 10% reduction in the market in March?

And 20 million unemployed would be a result, and you dont have to pay car insurance or rent.

And after all of that everything will just return to normal and we will all laugh as the S&P hits record highs while we walk around in bubble suits (or get arrested).

GDP is another thing to ignore...

I totally ignore that, it is silly not to.

This economy is incredible. This is the greatest scenario for business and finance that I have ever encountered in 60 years as a human being. Unfortunately nothing is open to buy a tie...for my job interview...anyone have a lead for an opening?

Howard Marks:

“The S&P 500 is 15% from its high - in a world that is way more than 15% screwed up”.

Health and wealth to all -

Hoongajji
fortyofforty
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Re: What explains the continued rise in equities?

Post by fortyofforty »

The stock market is soaring to prevent those who jumped out near the bottom from feeling too smug. They're still holding cash and waiting for the lower lows at which time they'll pour back in.
anoop
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Re: What explains the continued rise in equities?

Post by anoop »

fortyofforty wrote: Wed Apr 29, 2020 6:56 pm The stock market is soaring to prevent those who jumped out near the bottom from feeling too smug. They're still holding cash and waiting for the lower lows at which time they'll pour back in.
I'm still waiting for S&P500 to drop below 666.
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bigskyguy
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Re: What explains the continued rise in equities?

Post by bigskyguy »

Hoongajji wrote: Wed Apr 29, 2020 6:49 pm Sarcasm post.

Nobody knows nuthin...

I read this quote over and over...yack in the corner. Hazmat suit and mop, STAT.

If one knows nothing and others know nothing, what is to discuss? Nobody probably knows the answer anyway.

I will continue from my human and investment instincts.

TINA...cash is a safe alternative to plummeting markets. Mini blinds, a new fence, house paint, education, health, fitness, etc...a list of alternatives is infinite imo.

Or, buy F or CCL which may go bankrupt.

Why is the market going up?

Greed.

Irrationality.

Herd mentality.

But Hoongajji - the market is forward looking.

Then the market should have known that the COVID was only a 10% reduction in the market in March?

And 20 million unemployed would be a result, and you dont have to pay car insurance or rent.

And after all of that everything will just return to normal and we will all laugh as the S&P hits record highs while we walk around in bubble suits (or get arrested).

GDP is another thing to ignore...

I totally ignore that, it is silly not to.

This economy is incredible. This is the greatest scenario for business and finance that I have ever encountered in 60 years as a human being. Unfortunately nothing is open to buy a tie...for my job interview...anyone have a lead for an opening?

Howard Marks:

“The S&P 500 is 15% from its high - in a world that is way more than 15% screwed up”.

Health and wealth to all -

Hoongajji
Thank you, I needed (and certainly deserved) that.
sabhen
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Re: What explains the continued rise in equities?

Post by sabhen »

Economy and stocks are not perfectly correlated.

In 2019, Stocks did very well (like around +30%) despite US GDP growth of around 2%, albeit after a bad year in 2018 for stocks (around -20%) and a GDP growth of around 3%.

Then Fed changed course in early 2019 from tightening to easing. Fed policy has a big impact than generally acknowledged.

Don't fight the Fed.
Last edited by sabhen on Wed Apr 29, 2020 7:50 pm, edited 1 time in total.
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geerhardusvos
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Re: What explains the continued rise in equities?

Post by geerhardusvos »

nisiprius wrote: Wed Apr 29, 2020 12:50 pm "Who can explain it? Who can tell you why?
Fools give you reasons; wise men never try."
--Oscar Hammerstein, "Some Enchanted Evening," from South Pacific.
+1

No one knows
VTSAX and chill
RiotAct
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Re: What explains the continued rise in equities?

Post by RiotAct »

Mountain Doc wrote: Wed Apr 29, 2020 3:57 pm
bigskyguy wrote: Wed Apr 29, 2020 3:46 pm I am left with the sense that, as Ben Graham once said that the market is short term a voting machine by a small number of individuals who have agendas that are decoupled from the economy. For the majority of us who have a long term perspective, I find that very unfortunate.
If you have a long term perspective, why do you concern yourself with the daily movements? They are irrelevant to your stated goals.
Exactly.

It’s almost like some people actively root against optimism. A few years from now we’ll be looking back at 2020 and laughing that a large contingent of folks thought the world was going to end.
averagedude
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Re: What explains the continued rise in equities?

Post by averagedude »

knpstr wrote: Wed Apr 29, 2020 6:08 pm What's the alternative?

For people in 20s, 30s, 40s, that largely need growth to hit their retirement goals, they more or less have to keep putting money in equities.
Also retired people who need positive real returns to keep from running out of money in retirement. if you are a retiree who believes in the 4% rule, and you disregard equities, after 20 years you could be out of money unless you go super conservative and put all of your retirement assets in TIPS. Then you have about 25 years before you run out of money. I remain optimistic, but people are going to invest their money where it is treated well. To double your money, equities give you the best chance to do so. If you project 2% nominal out of fixed income, it will take around 36 years to double your money and this isn't even factoring in inflation.
patrick
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Re: What explains the continued rise in equities?

Post by patrick »

bigskyguy wrote: Wed Apr 29, 2020 6:10 pmAre you willing to trust your heard earned resources in a market that is not understandable? Given the dollars involved, I certainly believe/hope that more than opinion is driving the market. Otherwise, we are at the mercy of the greater fool hypothesis. The reasons behind the recent movement should be able to be understood. I'm simply asking for insights.
There has never been a time in history when underlying causes of market movements could be conclusively explained.

Back in April 2009, it wasn't obvious why the stock market had gone up so much from its March 2009 lows. After all, there was still plenty of bad news out there, and many people were arguing that things would get much worse. However, April 2009 was, in retrospect, a good time to buy stocks. The same applied back in the 1930s when the stock market began to rebound from its lows even while the depression still seemed to be ongoing. Of course, there are also examples in which the market moved up sharply only to crash soon after.

The best I can come up with is to note that it is, and always has been, possible to come up with arguments for both much higher stock prices and much lower stock prices. If only a small percentage of market participants switch which set of arguments they believe, the overall market could move quite a bit.

For example, if you accept the following arguments, the stock market ought to be slightly higher than its all-time highs back in February:
- Bond yields are extremely low which justifies higher stock valuations to make stocks fairly priced relative to bonds
- Most businesses are still functioning well because they can either work remotely or are deemed essential and thus not locked down
- The big businesses which make up the stock market will have less competition in the future due to small businesses (which have less reserves) going out of business
- Big businesses are able to adapt to changing conditions -- they would never have become big otherwise
- Only a few industries like oil and airlines are at serious risk, and they were already a very small portion of the stock market
- At least one of the many approaches being tried for a vaccine will work, and the urgency of the situation will accelerate the approval timeline
- While a drop in earnings in one quarter usually indicates a lasting problem that justifies a large price drop, the current earnings declines from a specific temporary cause
- The crisis gives businesses an excuse to do things they should have done before, such as getting rid of product lines that were never profitable
- While unemployment normally suppresses demand, expanded unemployment benefits prevent this -- many will find themselves with more cash on hand than ever before

There is even an argument to made that stocks ought to be at twice their all-time highs:
- The government took rapid and extensive action to counteract the stock market decline
- This indicates that stocks now have an implicit government guarantee against significant losses
- Since stocks are no longer very risky, they ought to have much higher valuations than they used to

Of course, there are also arguments for why stocks should be well below their March lows:
- Failures of some businesses will cause financial contagion that wrecks their suppliers and customers
- A large portion of the total market is in large tech companies whose prices assume that their dominance will continue, but they are actually at risk from antitrust and privacy regulations as well outside competitors
- People will still be afraid to go shopping even after lockdown orders are loosened
- Loosening lockdown orders will lead to a second wave of infection
- Workers who have been out of work for a long time will lose their skills
- Treatments and vaccines will be ineffective, difficult to produce in large quantities, or take a long time to develop and approve
- The market highs in February were themselves extremely optimistic
- Businesses are taking on lots of additional debt (most government assistance is in the form of loans) so future revenue will have to be devoted to paying off debts instead of expanding or paying dividends
- Expanded unemployment benefits will make unemployed workers reluctant to go back to work
- Shifting political sentiments will lead to government policies that reduce the profits of big business

I really don't know which of these scenarios is the most accurate. The optimistic argument regarding bond yields is clearly sound, but I'm not so sure about the rest of them. In my own modest portfolio, I bought more stocks on March 23, and I sold some of my stocks today.
Last edited by patrick on Wed Apr 29, 2020 7:57 pm, edited 1 time in total.
Ki_poorrichard
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Re: What explains the continued rise in equities?

Post by Ki_poorrichard »

anoop wrote: Wed Apr 29, 2020 4:05 pm This is a one time opportunity for plundering while Rome is burning.
Definitely feels like it.

We no longer have a so-called “free market economy.” The national debt is +24 trillion and rising. 26 million lost jobs to date. But, the “skies the limit” for the stock market.

Interesting times to say the least.
"We are never certain. We are always ignorant to some degree." - Peter L. Bernstein
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HomerJ
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Re: What explains the continued rise in equities?

Post by HomerJ »

firebirdparts wrote: Wed Apr 29, 2020 2:24 pm For businesses, the risk of death of employees is too big an area for me to appreciate. Lawyers will be exploring that landscape for the next 40 years.
80% (more?) of the deaths are old people with other conditions who are no longer working for businesses.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: What explains the continued rise in equities?

Post by Grt2bOutdoors »

bigskyguy wrote: Wed Apr 29, 2020 6:01 pm
Flashes1 wrote: Wed Apr 29, 2020 4:27 pm It sounds like somebody might be sitting on a pile of cash trying to time when to put it in equities.

If you have a +10 year perspective, why do you care about what the market's done in the past 10 trading days? The market doesn't care if you think it's overvalued.
Not the case. My wife and I are retired, have build a Safety First investment plan that has us comfortable irrespective of the market's direction. I am 70 and do intend to be around for more than 10 years. I am simply trying to understand how one rationally drives up equities when the P/E is at abnormally high levels and the economy is closed for the near future, and likely impacted adversely for the foreseeable future. I am a retired internist and have significant concerns for the near term economy in light of a moderately aggressive virus for which herd immunity does not presently exist and won't for the next 12-24 months, and absent a reasonable expectation for adequate immunization for at least that time frame. Given the medical realities that we are facing, I don't see a rapid or near rapid economic turn around, and wouldn't be surprised if we see a slow recovery not dissimilar to what happened in the 1930s.
So with that perspective, I would truly like to know what those who are driving the market are seeing that I am not. Educate me.
Pent up demand when the economy re-opens. People in general, tend to forget, then revert to previous spending patterns. People will congregate again, they will go to coffee shops, they will go to restaurants, they will buy cars, they will take planes, they will demand more services to make up for the times when they put purchasing those services off. People are quarantine-weary! I see it in my neighborhood which is in a state that is under mandatory stay in place conditions and will be for at least the next 2-4 weeks. I'll tell you right now, I'm seeing more car traffic where in the early stages of this, there was hardly a car driven on any street. And no, they are not all going to the grocery store, pharmacy or bank. I don't know where they are going, but in the car they are.

Second, the market is always forward looking and there are a number of companies for whom the sell-off was completely overdone. Here's an example, companies that have low debt, lower debt than their peers, diversified businesses in their respective industry that are considered essential in the chain of production. What happened? Sales dropped off considerably and haven't picked back up to the former level. The market assumed during the sell-off that this stay in place order would spread across the country and world at exactly the same pace - it did not and has not. Then, the market assumed that we will all be using kites to move around, that's not happening either, nor will it anytime soon. The market assumed that financing was unattainable - buzzer ringing - ehh, wrong again. The Fed is facilitating the sale of commercial paper and investment quality grade debt, those who may have been locked out due to the markets freezing up, once again have normal access to the markets and reasonable cost of debt. Those without investment grade quality, well, they have alternatives but they will need to pay up to get it in the short-run. There is no shortage of available credit, it's all depending upon the willingness to pay for it.

Third, history rhymes, but it doesn't repeat! In the 1930's, the Fed was not responsive, the establishment as a whole, again was non-responsive until the situation became very bad, then the New Deal was introduced. Had it been introduced in 1929, as in a day or a week after the big crash, it likely would have had a different outcome. Will there be a slow recovery, most likely and I would not discount it but nor would I discount the ability for recovery. After 9/11 we thought in NYC, things would come crashing down, within 6 months, spending was back up and higher than it was before that catastrophic event. They were talking recession, I recall going to a restaurant where the wait was an hour long with reservations and someone made the comment as we were walking in "Recession, there's no recession" and they were right! Those making investments today are in this for the long haul, but alot of the trading that is going on is also driven by institutional money and a good portion of that is pure speculation. The money is considered "hot" for a reason, it can leave as fast as it enters. A real investor, stays in for a very very long time. Hope springs eternal.

Just my two cents on the vagaries of the market. I'm sure my two cents is better than the gibberish on CNBC.
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Re: What explains the continued rise in equities?

Post by Ki_poorrichard »

sabhen wrote: Wed Apr 29, 2020 7:16 pm Don't fight the Fed.
That’s exactly what the market participants believe.
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Re: What explains the continued rise in equities?

Post by Grt2bOutdoors »

HomerJ wrote: Wed Apr 29, 2020 7:56 pm
firebirdparts wrote: Wed Apr 29, 2020 2:24 pm For businesses, the risk of death of employees is too big an area for me to appreciate. Lawyers will be exploring that landscape for the next 40 years.
80% (more?) of the deaths are old people with other conditions who are no longer working for businesses.
Eh...write in a law that excludes culpability, like the Federal government is doing for various activities now. They can do as much exploring as they like, but no court is going to overturn that law. Have fun with that! :twisted:
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Re: What explains the continued rise in equities?

Post by Grt2bOutdoors »

Ki_poorrichard wrote: Wed Apr 29, 2020 7:54 pm
anoop wrote: Wed Apr 29, 2020 4:05 pm This is a one time opportunity for plundering while Rome is burning.
Definitely feels like it.

We no longer have a so-called “free market economy.” The national debt is +24 trillion and rising. 26 million lost jobs to date. But, the “skies the limit” for the stock market.

Interesting times to say the least.
Are those losses permanent though? I don't know about you, but I will be getting a haircut the moment they allow them to re-open. I will be visiting stores that sell things other than bread and milk, I will be visiting a restaurant at some point down the road. The jobs are going to come back, and new jobs will be created as we see what happens when the supply chain is located outside of the country and logistics breaks down.
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Re: What explains the continued rise in equities?

Post by Ki_poorrichard »

Grt2bOutdoors wrote: Wed Apr 29, 2020 8:03 pm
Ki_poorrichard wrote: Wed Apr 29, 2020 7:54 pm
anoop wrote: Wed Apr 29, 2020 4:05 pm This is a one time opportunity for plundering while Rome is burning.
Definitely feels like it.

We no longer have a so-called “free market economy.” The national debt is +24 trillion and rising. 26 million lost jobs to date. But, the “skies the limit” for the stock market.

Interesting times to say the least.
Are those losses permanent though? I don't know about you, but I will be getting a haircut the moment they allow them to re-open. I will be visiting stores that sell things other than bread and milk, I will be visiting a restaurant at some point down the road. The jobs are going to come back, and new jobs will be created as we see what happens when the supply chain is located outside of the country and logistics breaks down.
I don’t know the future. There are confounding variables to it. Either way, it’s a bet. At this time and point, everyone is making that bet. Time will tell.
Last edited by Ki_poorrichard on Wed Apr 29, 2020 8:28 pm, edited 1 time in total.
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Re: What explains the continued rise in equities?

Post by anoop »

Here's what Powell said:
https://youtu.be/dBTfIIm-sgU?t=3401
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Re: What explains the continued rise in equities?

Post by HomerJ »

Mountain Doc wrote: Wed Apr 29, 2020 3:57 pm
bigskyguy wrote: Wed Apr 29, 2020 3:46 pm I am left with the sense that, as Ben Graham once said that the market is short term a voting machine by a small number of individuals who have agendas that are decoupled from the economy. For the majority of us who have a long term perspective, I find that very unfortunate.
If you have a long term perspective, why do you concern yourself with the daily movements? They are irrelevant to your stated goals.
This.

You are left with the impression that Ben Graham was right. That's a good impression. Nothing has changed in 70 years. You should be thankful you've heard of Ben Graham. Young people usually have to learn the hard way through the experience of losing money. You recognize that wise people from the past already have wisdom to impart.

What you are asking is a dumb question, and you know this... Because you've read Ben Graham's quote. So you already knew the answer.

Think long-term and ignore the noise... Lot of new people here who think short-term moves matter. They don't. Think long-term.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: What explains the continued rise in equities?

Post by Clever_Username »

Grt2bOutdoors wrote: Wed Apr 29, 2020 8:03 pm
Ki_poorrichard wrote: Wed Apr 29, 2020 7:54 pm
anoop wrote: Wed Apr 29, 2020 4:05 pm This is a one time opportunity for plundering while Rome is burning.
Definitely feels like it.

We no longer have a so-called “free market economy.” The national debt is +24 trillion and rising. 26 million lost jobs to date. But, the “skies the limit” for the stock market.

Interesting times to say the least.
Are those losses permanent though? I don't know about you, but I will be getting a haircut the moment they allow them to re-open. I will be visiting stores that sell things other than bread and milk, I will be visiting a restaurant at some point down the road. The jobs are going to come back, and new jobs will be created as we see what happens when the supply chain is located outside of the country and logistics breaks down.

I can't wait to get another haircut. My last one was February 29. And I can't wait to go get sushi, not to go, but sitting at the counter and ordering as the fancy strikes me.
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Re: What explains the continued rise in equities?

Post by Ki_poorrichard »

It appears as if we all are desensitized to the reality of what took place in December 2018.
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Re: What explains the continued rise in equities?

Post by anoop »

Ki_poorrichard wrote: Wed Apr 29, 2020 9:18 pm It appears as if we all are desensitized to the reality of what took place in December 2018.
It was a different time with respect to fed AND congress stimulus.
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Re: What explains the continued rise in equities?

Post by Ki_poorrichard »

anoop wrote: Wed Apr 29, 2020 9:22 pm
Ki_poorrichard wrote: Wed Apr 29, 2020 9:18 pm It appears as if we all are desensitized to the reality of what took place in December 2018.
It was a different time with respect to fed AND congress stimulus.
Does anyone sincerely believe that interest rates can ever be hiked to that point or higher to shrink the balance sheet in the future? I can’t help but feel that we have crossed the point of no return.
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Re: What explains the continued rise in equities?

Post by anoop »

Ki_poorrichard wrote: Wed Apr 29, 2020 9:28 pm
anoop wrote: Wed Apr 29, 2020 9:22 pm
Ki_poorrichard wrote: Wed Apr 29, 2020 9:18 pm It appears as if we all are desensitized to the reality of what took place in December 2018.
It was a different time with respect to fed AND congress stimulus.
Does anyone sincerely believe that interest rates can ever be hiked to that point or higher to shrink the balance sheet in the future? I can’t help but feel that we have crossed the point of no return.
It's pretty much impossible. There is and will continue to be too much debt in the system. Just like Yellen said "no more crises in our lifetime", I'll go out and say it "no more positive interest rate in our lifetime". The difference is that she was wrong, and she knew she was wrong when she said it, and I'll be right. If interest rates move, they will move in the downward direction to NIRP. There are basically 2 bazookas the fed has left -- NIRP and buying stocks. Other than that, they are the market. If you need money, figure out a way to sell some bonds and the fed will buy them.
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Re: What explains the continued rise in equities?

Post by Ki_poorrichard »

I really need a hair cut.
Last edited by Ki_poorrichard on Wed Apr 29, 2020 9:42 pm, edited 1 time in total.
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Re: What explains the continued rise in equities?

Post by anoop »

Clever_Username wrote: Wed Apr 29, 2020 8:56 pm I can't wait to get another haircut.
Sorry, with the way the fed is pumping things, no more haircuts for the foreseeable future.
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Re: What explains the continued rise in equities?

Post by palaheel »

We've had a bull market for 10 years. The last few years have seen an economic boom. Some people say that the business environment and innovation in the US are better than anywhere else on the planet, and that the US market will continue to lead the way into the foreseeable future. There's a tremendous amount of optimism built up. This results in thinking that we'll come out of this shutdown soon, and rebuild quickly and stronger than ever.

I hope the rebound will be as the optimists think.

But maybe disastrous economic news in June or July will cause a deep, dark funk to set in, and we'll be in another depressing "death of equities," "housing crisis" moment. At that point, there could be a real bear market that could last for some time.
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Re: What explains the continued rise in equities?

Post by UpsetRaptor »

During most recessions, there's a larger uncertainty factor regarding the duration and long-term effects of the economic issues. For example, in the GFC, it felt like the whole financial system would come crumbling down, with who-knows-what type of repercussions from there. This time around there's somewhat more clarity, in that the inherent problem and its probable solutions are relatively tangible, and most people expect the situation to be truly resolved, in some form, in 2021 at the latest.
Last edited by UpsetRaptor on Wed Apr 29, 2020 9:50 pm, edited 1 time in total.
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