Why is the stock market up? [thread multi-merge]

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pokebowl
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Re: How is this possible -- stock market continues to soar.

Post by pokebowl »

dbr wrote: Mon Jul 13, 2020 9:31 am What is the understanding of how the market can maintain these prices in the face of current events?
The market is probably predicting the issues in regards to this one particular event have an expiration date of November.

On a serious note, no one knows. It may help to see what specific companies within the indexes you use are causing the increase in gains. Then see what their role has been since the current news cycle on current events. :beer
Last edited by pokebowl on Mon Jul 13, 2020 10:20 am, edited 1 time in total.
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Re: How is this possible -- stock market continues to soar.

Post by CyclingDuo »

TheTimeLord wrote: Mon Jul 13, 2020 10:16 am
A bad flu season usually costs us around 65,000 lives so 140,000 out of a population of 300,000,000+ is incredibly sad and very tragic (especially on a personal level) but nowhere near the estimate of up to 2 million we were hearing when the selloff occurred as I remembered. Then you have the of process of creative destruction being put into hyperdrive as we find ways to live with the pandemic. Also think of the virus platforms being develop that will not only help with Covid-19 but future viruses. Growth companies are being what they were projected to be years from now in months and dying decaying zombie businesses are disappearing or at the least reorganizing. Seriously, JC Penney's has been going out of business for a decade. Why should any retailer that hadn't got their omni channel act together exists except for some specific speciality stores. Strong companies are picking valuable but mismanaged competitors. To make myself sound more delirious I might even say that if weren't for the virus we might consider what is going on as a golden age of digital transformation. So if you think that either through treatments or vaccines Covid-19 can be turned into seasonal flu by Q1 2021 and you are forward looking what are the reasons to be pessimistic? Oh, and where else are you going to put you money for a return? This is not to say we aren't without significant challenges in the near term, opening of schools being the biggest I see, but that is near term.

Anyway, that is essentially my take, but no one should make an investment decision based on what I am thinking. ....
I think the sentence I bolded in red is key to what you said.
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Re: How is this possible -- stock market continues to soar.

Post by KlangFool »

OP,

Close to 50 million unemployed and the stock market is soaring. Yes, the market is irrational. As long as someone is not 100% stock and they can outlast the coming crash, they should be fine. But, given the level of overoptimism, there will be a fair amount of capitulation.

I am unemployed. I am increasing my emergency fund and I am buying more gold and silver.

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Re: How is this possible -- stock market continues to soar.

Post by caffeperfavore »

TheTimeLord wrote: Mon Jul 13, 2020 10:16 am A bad flu season usually costs us around 65,000 lives so 140,000 out of a population of 300,000,000+ is incredibly sad and very tragic (especially on a personal level) but nowhere near the estimate of up to 2 million we were hearing when the selloff occurred as I remembered.
With the exception of the 1918 Spanish flu, 65K is on the very high end of yearly flu deaths. A typical year is about half that according to CDC records. We've shut down a large part of the country and those of that are going out are social distancing and wearing masks (many of us anyway). We're a long way from business as usual right now, and yet we've still lost over 130k people. Had we done nothing, 2M deaths doesn't seem all that unlikely. It's not as if the models were inaccurate, it's that we've changed a lot to prevent it.
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Re: How is this possible -- stock market continues to soar.

Post by rgs92 »

Taking the long view, the S&P is roughly double what it was 20 years ago (and dividends have been modest at best).
So, if you believe in the Bogle maxim that it's "Time in the Market" that counts, that's an underwhelming return so far, so the market is not that high and there are good times ahead.
(I will ignore Cherry Picking, current P/Es, and other such annoying thoughts for now and just look at the bright side of life.)
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Re: How is this possible -- stock market continues to soar.

Post by markcoop »

I expect more than usual volatility over the near (till we have a vaccine) future. That means up and down as we chart our way through uncharted territories. Does that mean we will hit new lows this year? I doubt it. But if we dropped 15% from here I wouldn't be surprised. Of course, it may be a less, say 10% or 7%. I also expect the ups to come. Nothing new in my post, just expectation of greater than usual volatility because of the unknown.
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Re: How is this possible -- stock market continues to soar.

Post by TheTimeLord »

CyclingDuo wrote: Mon Jul 13, 2020 10:20 am
TheTimeLord wrote: Mon Jul 13, 2020 10:16 am
A bad flu season usually costs us around 65,000 lives so 140,000 out of a population of 300,000,000+ is incredibly sad and very tragic (especially on a personal level) but nowhere near the estimate of up to 2 million we were hearing when the selloff occurred as I remembered. Then you have the of process of creative destruction being put into hyperdrive as we find ways to live with the pandemic. Also think of the virus platforms being develop that will not only help with Covid-19 but future viruses. Growth companies are being what they were projected to be years from now in months and dying decaying zombie businesses are disappearing or at the least reorganizing. Seriously, JC Penney's has been going out of business for a decade. Why should any retailer that hadn't got their omni channel act together exists except for some specific speciality stores. Strong companies are picking valuable but mismanaged competitors. To make myself sound more delirious I might even say that if weren't for the virus we might consider what is going on as a golden age of digital transformation. So if you think that either through treatments or vaccines Covid-19 can be turned into seasonal flu by Q1 2021 and you are forward looking what are the reasons to be pessimistic? Oh, and where else are you going to put you money for a return? This is not to say we aren't without significant challenges in the near term, opening of schools being the biggest I see, but that is near term.

Anyway, that is essentially my take, but no one should make an investment decision based on what I am thinking. ....
I think the sentence I bolded in red is key to what you said.
Think of how many people have been forced to learn how to do things online because off this, or business finding new ways to deliver products and services to consumers and clients.
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Re: How is this possible -- stock market continues to soar.

Post by Stinky »

CyclingDuo wrote: Mon Jul 13, 2020 10:20 am
TheTimeLord wrote: Mon Jul 13, 2020 10:16 am
A bad flu season usually costs us around 65,000 lives so 140,000 out of a population of 300,000,000+ is incredibly sad and very tragic (especially on a personal level) but nowhere near the estimate of up to 2 million we were hearing when the selloff occurred as I remembered. Then you have the of process of creative destruction being put into hyperdrive as we find ways to live with the pandemic. Also think of the virus platforms being develop that will not only help with Covid-19 but future viruses. Growth companies are being what they were projected to be years from now in months and dying decaying zombie businesses are disappearing or at the least reorganizing. Seriously, JC Penney's has been going out of business for a decade. Why should any retailer that hadn't got their omni channel act together exists except for some specific speciality stores. Strong companies are picking valuable but mismanaged competitors. To make myself sound more delirious I might even say that if weren't for the virus we might consider what is going on as a golden age of digital transformation. So if you think that either through treatments or vaccines Covid-19 can be turned into seasonal flu by Q1 2021 and you are forward looking what are the reasons to be pessimistic? Oh, and where else are you going to put you money for a return? This is not to say we aren't without significant challenges in the near term, opening of schools being the biggest I see, but that is near term.

Anyway, that is essentially my take, but no one should make an investment decision based on what I am thinking. ....
I think the sentence I bolded in red is key to what you said.
Excellent observation.

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Re: How is this possible -- stock market continues to soar.

Post by Ron Ronnerson »

I’ll speculate. My guess is that the market is focusing on the reason there were no deaths in New York City yesterday from the virus. That reason is not clear to me. The market is more knowledgeable so perhaps it has an inkling. Even if not, the fact that the epicenter of the virus in the U.S. from not that long now has this result to show bodes well.
Last edited by Ron Ronnerson on Mon Jul 13, 2020 10:41 am, edited 1 time in total.
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Re: How is this possible -- stock market continues to soar.

Post by MN-Investor »

I am just as puzzled by the stock market as the OP is.

BUT... as a Boglehead posting on this forum the question always is What is actionable?

Bogleheads are not supposed to be market timers. We're in it for the long haul. That said, we also read the newspapers and listen to the pundits and try to adjust our asset allocations to what we can live with at any point in time.

The problem right now is not the number of people dying from the virus. The problem right now, in my humble opinion, is the very high unemployment rate and the huge losses being suffered by whole industries - travel, entertainment, restaurants, etc.

Ultimately the question boils down to which do you believe?

- The economy is going to bounce right back, unemployment is going to drop and travel, entertainment, restaurants, etc. are going to be back in business.

OR

- The economy is going to continue to suffer as people continue to avoid restaurants, travel, arenas, amusement parks, etc. Unemployment will continue to be high. Moreover, renters will lose their apartments and mortgages will be foreclosed. It will be years before the economy recovers from this.

So, based on your personal opinion, you may revise your asset allocation. As for me, I've reduced my stock holdings (I'm retired) from 40% to 30%.
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Re: How is this possible -- stock market continues to soar.

Post by Doc »

TomatoTomahto wrote: Mon Jul 13, 2020 9:42 am My cash and bond balances continue to go up, and I just refer to it as growing my emergency fund or increasing the safe portion of our Liability Matching Portfolio.
Your bond balances are going up because interest rates are going down. If you don't add more then the balance will return to its approximate original amount at the duration.
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Re: How is this possible -- stock market continues to soar.

Post by Triple digit golfer »

I have seen people toss around the idea of taking a chunk out of the stock market and putting it in bonds or cash because the market seems over valued.

I have seen people toss around the idea of putting everything in stocks because bonds and cash offer basically nothing.

So, I sit here doing nothing, investing per my IPS, which was created in much calmer times and has saved me from letting news, current events, pundits, or even other Boglehead forum members sway me from my plan.
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Re: How is this possible -- stock market continues to soar.

Post by dbr »

A comment on actionable. We personally are changing absolutely nothing. The possibility of a permanent loss of 50% of our stock investment is within the range of possible outcomes -- or even more than that -- not that I am predicting any such thing.

My question is in "Theory" rather than "Personal Investments" because I am curious from a theoretical perspective and not about what someone should do about it.

So far there are a lot of good perspectives on this that are helpful.
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Re: How is this possible -- stock market continues to soar.

Post by tvubpwcisla »

Markets are still trading at a huge discount from the all time highs. Expect more gains to come!
Stay invested my friends.
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Re: How is this possible -- stock market continues to soar.

Post by McGilicutty »

OP,

Now that I'm working from home I'm more productive than I've ever been. The people that have passed on are less than 1/10 of a percent of the population. It's tragic, but it's really a small percentage.

So you have workers that are likely twice as productive due to working from home and thus much less management interference coupled with a very supportive Fed. I am 100% stocks (not counting my EF) and could easily see the stock market doubling from here.

Additionally, I am very pleased to see a large segment of Bogleheads willing to lend their money to the government at basically 0% interest. I'm sure the government will put that money to good use.
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Re: How is this possible -- stock market continues to soar.

Post by abuss368 »

dbr wrote: Mon Jul 13, 2020 9:31 am My portfolio value is now higher than it was in January 2020. I am a retiree actually spending money.

And yet between then and now 137,191 people have died in this country from a pandemic in which we have been totally isolated in our home from March 8 onward.

What is the understanding of how the market can maintain these prices in the face of current events?
It defies all logic. The market must be pricing in these facts. Should anything material happen that differ from expectation or projections then I would expect volatility to increase.
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Re: How is this possible -- stock market continues to soar.

Post by dogagility »

huskerfan1414 wrote: Mon Jul 13, 2020 9:48 am I think the answer is more simple than we believe.

1. People die. That's really a horribly blunt way to put it, but it is a fact of life.

2. Most people understand the death rate is really what matters and the number of "positives" is due to more testing, even of those not showing symptoms. They know the shutdown will end, and should end, soon.

3. People are investing money in the stock market. They knew #2 back in March, April, and May and so they bought bought bought and I believe there were also a lot of "new" investors or investors that upped the ante to where they should be investing (my wife being one of them).

When people invest, the market goes up. When everyone sells, it goes down. People think the economy will start up again, and are investing accordingly.
+1

Predictions in early 2020 based upon poor models coupled with uncertainty lead to the stock market decline. Once actual data were obtained showing these models wildly overestimated the risk/effect, the market realized this too would pass and rose. Pretty simple, IMO.
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Re: How is this possible -- stock market continues to soar.

Post by Normchad »

I also expect volatility to,increase.

There is a lot of stuff coming up soon, that we just don’t know. There is a lot of uncertainty. And once those things become more certain, the market will react.

If a vaccine is perfected tomorrow, there will be a reaction. If the death toll quintuples, there will be a reaction.

It might be the case that the American economy figures out to manage the same level of output with only 70% of their staff. Good for profits, and there would be a reaction. Or companies figure out how to do everything remote, and offshore all those jobs over time, then a different reaction would be seen.

These are uncertain times, so there will be gyrations. And a national election is coming up, which the market usually reacts to as well after the results are in.
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Re: How is this possible -- stock market continues to soar.

Post by Grt2bOutdoors »

They say we are living on borrowed time, the market is living on borrowed money. Should the central banks tighten liquidity, you will hear a giant swoosh!

I’m still buying equities - why? Because at current rates the market is cheaper than locking your money up for 10 years, 20 years. Go look at the yield on the S&P500 - 1.8%? Let’s say the dividend gets cut in half tomorrow, the yield is still better than the 10 year bond and you get an option call in better returns over the next 10 years. Which option do you select?
Last edited by Grt2bOutdoors on Mon Jul 13, 2020 11:16 am, edited 1 time in total.
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Re: How is this possible -- stock market continues to soar.

Post by SchruteB&B »

caffeperfavore wrote: Mon Jul 13, 2020 10:24 am
TheTimeLord wrote: Mon Jul 13, 2020 10:16 am A bad flu season usually costs us around 65,000 lives so 140,000 out of a population of 300,000,000+ is incredibly sad and very tragic (especially on a personal level) but nowhere near the estimate of up to 2 million we were hearing when the selloff occurred as I remembered.
With the exception of the 1918 Spanish flu, 65K is on the very high end of yearly flu deaths. A typical year is about half that according to CDC records. We've shut down a large part of the country and those of that are going out are social distancing and wearing masks (many of us anyway). We're a long way from business as usual right now, and yet we've still lost over 130k people. Had we done nothing, 2M deaths doesn't seem all that unlikely. It's not as if the models were inaccurate, it's that we've changed a lot to prevent it.
The TimeLord said a bad flu season takes around 65,000 lives, not a typical year. The last bad flu year in the US according to the CDC was 2017-18 and indeed flu fatalities were around 61,000.

https://www.cdc.gov/flu/about/burden-av ... 7-2018.htm
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Re: How is this possible -- stock market continues to soar.

Post by jason2459 »

Nothing to do but stand here.
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Re: How is this possible -- stock market continues to soar.

Post by TheTimeLord »

Grt2bOutdoors wrote: Mon Jul 13, 2020 11:13 am They say we are living on borrowed time, the market is living in borrowed money. Should the central banks tighten liquidity, you will hear a giant swoosh!
What is the point of this post about this anonymous "They"? Are you saying we should get out of the market because "They" said we should? Haven't "They" been saying that about Central Banks for about a decade? I am sure it will happen someday but we saw back in 2018 how the market reacts to such things so do "They" really think the Central Banks have the stomach for such actions unless something forces them to tighten?
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Re: How is this possible -- stock market continues to soar.

Post by Seasonal »

Pick one:

1) The market rationally takes into account all available information and believes pricing is appropriate, perhaps because it thinks things will be better after a reasonable period of time and lost value from that period is small compared to total value.

2) The market is being irrational.

While this is an interesting question, the better question is what you should to about it. History suggests staying the course and tuning out news and market movements.
Last edited by Seasonal on Mon Jul 13, 2020 11:21 am, edited 1 time in total.
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Re: How is this possible -- stock market continues to soar.

Post by cashboy »

dbr wrote: Mon Jul 13, 2020 9:31 am What is the understanding of how the market can maintain these prices in the face of current events?
i asked myself the same question and came up with several possible 'answers' (as others have mentioned), but they brought me no closer to truly understanding or providing any sense of relief or satisfaction. :?

the world (and the market) does not always work logically, or as we expect it to (and I mean that in a nice way), so i am just rolling with it; i am changing nothing and staying the course.
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Re: How is this possible -- stock market continues to soar.

Post by Anon9001 »

It is basic really the Index Funds you are owning had high weightage in Tech which thrived in this crisis for obvious reasons. If you had invested in NASDAQ you would have thought there was no crisis. It goes to show sector weights are important. In my local country we did not have many tech stocks and very high weightage of financial stocks so our local stocks fell very much. I thankfully did not put that much money in my local stocks at the time.
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Re: How is this possible -- stock market continues to soar.

Post by goodenyou »

After 13 years on this forum and 32,000+ posts, you are flummoxed by the behavior of the stock market? You are making me re-think the "this time it's different" mantra.
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Re: How is this possible -- stock market continues to soar.

Post by X528 »

KlangFool wrote: Mon Jul 13, 2020 10:24 am OP,

Close to 50 million unemployed and the stock market is soaring. Yes, the market is irrational. As long as someone is not 100% stock and they can outlast the coming crash, they should be fine. But, given the level of overoptimism, there will be a fair amount of capitulation.

I am unemployed. I am increasing my emergency fund and I am buying more gold and silver.

KlangFool
KlangFool,

Are you still 60/40 stock/bond and maintaining that allocation in retirement?
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Re: How is this possible -- stock market continues to soar.

Post by jason2459 »

goodenyou wrote: Mon Jul 13, 2020 11:31 am After 13 years on this forum and 32,000+ posts, you are flummoxed by the behavior of the stock market? You are making me re-think the "this time it's different" mantra.
Don't rethink anything. Everytime is different in some way. Stay the course, IMO, is still the best reaction. As Mr. Bogle would say that he has said to stay the course a thousand times and meant it every time.
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Re: How is this possible -- stock market continues to soar.

Post by TheTimeLord »

Can someone give me a list of the negatives/challenges they see the economy and the markets facing between now and Q2 2021 and if they are permanent or lingering or temporary? I want to see if I have any blindspots I am unaware of.
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Re: How is this possible -- stock market continues to soar.

Post by RetiredAL »

huskerfan1414 wrote: Mon Jul 13, 2020 9:48 am I think the answer is more simple than we believe.

1. People die. That's really a horribly blunt way to put it, but it is a fact of life. About 2.8 million a year in the US.

2. Most people understand the death rate is really what matters and the number of "positives" is due to more testing, even of those not showing symptoms. They know the shutdown will end, and should end, soon.

3. People are investing money in the stock market. They knew #2 back in March, April, and May and so they bought bought bought and I believe there were also a lot of "new" investors or investors that upped the ante to where they should be investing (my wife being one of them).

When people invest, the market goes up. When everyone sells, it goes down. People think the economy will start up again, and are investing accordingly.
Death is a fact. Most don't want to talk about it. Most don't even know what the normal number is - about 2.8 million a year in the US.

I think initially the scare numbers, being daily escalated by the talking heads, made the panic worse. Now reality has set in. Yes, some business area are hurting, other are doing just fine. Obviously, the market's forward outlook at this time is positive. Unemployment effects so far seem to have been largely been muted by the unemployment payout bonuses. The monkey in the room is what will happen when all the prop-ups expire?
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Re: How is this possible -- stock market continues to soar.

Post by KlangFool »

X528 wrote: Mon Jul 13, 2020 11:32 am
KlangFool wrote: Mon Jul 13, 2020 10:24 am OP,

Close to 50 million unemployed and the stock market is soaring. Yes, the market is irrational. As long as someone is not 100% stock and they can outlast the coming crash, they should be fine. But, given the level of overoptimism, there will be a fair amount of capitulation.

I am unemployed. I am increasing my emergency fund and I am buying more gold and silver.

KlangFool
KlangFool,

Are you still 60/40 stock/bond and maintaining that allocation in retirement?
Yes.

KlangFool
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Re: How is this possible -- stock market continues to soar.

Post by Grt2bOutdoors »

TheTimeLord wrote: Mon Jul 13, 2020 11:18 am
Grt2bOutdoors wrote: Mon Jul 13, 2020 11:13 am They say we are living on borrowed time, the market is living in borrowed money. Should the central banks tighten liquidity, you will hear a giant swoosh!
What is the point of this post about this anonymous "They"? Are you saying we should get out of the market because "They" said we should? Haven't "They" been saying that about Central Banks for about a decade? I am sure it will happen someday but we saw back in 2018 how the market reacts to such things so do "They" really think the Central Banks have the stomach for such actions unless something forces them to tighten?
“They” is a descriptive term but not pointed at any monetary or governmental agency. It’s an old saying - we are living on borrowed time. I used the word “they” but I could have say “we”.
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Re: How is this possible -- stock market continues to soar.

Post by TechGuy365 »

McGilicutty wrote: Mon Jul 13, 2020 10:58 am So you have workers that are likely twice as productive due to working from home and thus much less management interference coupled with a very supportive Fed. I am 100% stocks (not counting my EF) and could easily see the stock market doubling from here.

Additionally, I am very pleased to see a large segment of Bogleheads willing to lend their money to the government at basically 0% interest. I'm sure the government will put that money to good use.
Agree with your observations on lending money at 0% or negative real interest. There should be a price to pay for safety after all in times like this; there is no free lunch.

On 2x productivity - I am definitely more productive but I do worry about people burning out due to higher expectation and no breaks between meetings. I give people more space accordingly.

As bullish as I am, I think it will take a little while for the overall market to double because of the laggers. I hope we'll go sideways a little to establish a stronger support, but there is little chance of that consider the Q2 earning announcements will come up starting this week. There will be strong swings up and down for sure.
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Re: How is this possible -- stock market continues to soar.

Post by Grt2bOutdoors »

RetiredAL wrote: Mon Jul 13, 2020 11:43 am
huskerfan1414 wrote: Mon Jul 13, 2020 9:48 am I think the answer is more simple than we believe.

1. People die. That's really a horribly blunt way to put it, but it is a fact of life. About 2.8 million a year in the US.

2. Most people understand the death rate is really what matters and the number of "positives" is due to more testing, even of those not showing symptoms. They know the shutdown will end, and should end, soon.

3. People are investing money in the stock market. They knew #2 back in March, April, and May and so they bought bought bought and I believe there were also a lot of "new" investors or investors that upped the ante to where they should be investing (my wife being one of them).

When people invest, the market goes up. When everyone sells, it goes down. People think the economy will start up again, and are investing accordingly.
Death is a fact. Most don't want to talk about it. Most don't even know what the normal number is - about 2.8 million a year in the US.

I think initially the scare numbers, being daily escalated by the talking heads, made the panic worse. Now reality has set in. Yes, some business area are hurting, other are doing just fine. Obviously, the market's forward outlook at this time is positive. Unemployment effects so far seem to have been largely been muted by the unemployment payout bonuses. The monkey in the room is what will happen when all the prop-ups expire?
Third quarter numbers - stay tuned, October isn’t that far away!
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dogagility
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Re: How is this possible -- stock market continues to soar.

Post by dogagility »

Grt2bOutdoors wrote: Mon Jul 13, 2020 11:18 am Don’t count on it - what has replaced smoking? It’s not the virus, it’s people’s mouths. There is more diabetes today than 30 years ago.
Yes, and a general lack of activity.
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milktoast
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Re: How is this possible -- stock market continues to soar.

Post by milktoast »

The rally is largely driven by tech. If people run out of money to spend on anything, tech will suffer. But if everyone is stuck at home and not out of money, tech will do well. The expanded unemployment and stimulus helps reduce odds of everyone running out of money.

And on the other side, the people who own most of the stocks aren't really impacted by the financial downturn yet. People who tens of millions of dollars in stock/bonds aren't sweating bullets because their service sector job is gone. And the government is pumping tons of liquidity into bonds reducing the risk to those top tier investors.

So a ton of money is flooding in from the government. Most of it is ending up in the hands of people who don't need to spend it (the wealthy) - so they need to invest it. What is landing in the hands of people who need the money often ends up spent on tech.

It's rational in the short term. But ultimately if we continue rapid pace of wealth and income concentration, there will be problems later on that actually make it all the way up to the investor class. That hasn't happened yet due to government stimulus.

Feels like a bubble. But is it a bubble circa 1999 or is it a bubble circa 1996? Dunno. Gonna stick to my IPS.
Xrayman69
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Re: How is this possible -- stock market continues to soar.

Post by Xrayman69 »

There are winners and losers. During the shutdown and reopening stages the largest of the business’ probably had an inherent advantage compared to smaller competitors. In the future after this all clears when we go back to “normal” the winners will have less competition. This doesn’t mean the “winners” did necessarily great but on the other side they will be “stronger “ then the smaller competitors and thus higher potential for future profits compared to smaller. The S&P 500 are large companies and thus this indexmhas a lot of likely winners. The mom and pop shops are not in the equity market and thus close and have little effect upon the index fund until or unless there is a critical mass that leads to contraction of spending. At this time spending has not yet contracted. Unemployment insurance, stimulus payments, and other fiscal maneuvers has underwritten the market and decreased fear.

However, who knows when and if the “emotion” may kick in then momentum changes to decreased personal spending by individuals.

Our portfolio is greater than it was on January 1 taking into account the “routine” additions. We bought in late March and rebalanced the asset allocation when they crossed 5%. This occurred twice. Just stick to the plan that is comfortable for your stage should a choppy ride to the downside occur.
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Re: How is this possible -- stock market continues to soar.

Post by sperry8 »

dbr wrote: Mon Jul 13, 2020 9:31 am My portfolio value is now higher than it was in January 2020. I am a retiree actually spending money.

And yet between then and now 137,191 people have died in this country from a pandemic in which we have been totally isolated in our home from March 8 onward.

What is the understanding of how the market can maintain these prices in the face of current events?
1. The # of deaths is insignificant (not talking personally to those affected, solely from a #'s standpoint). Take a look at the % of deaths to gain perspective. Rank those deaths against total % of deaths annually. Overlay those %'s by age group to see who is leaving. This perspective would give you a better understanding of why 137,191 have absolutely no effect on the stock markets price. The numbers could be exponentially higher and would still have no effect. Also understand due to behavioral shifts, other illnesses have caused less deaths now. Think flu. Flu season in many areas was almost non-existent and deaths that occurred from it also gone.

2. Isolation in a home is not relevant. That is where your physical body is. The stock market does not care where humans sit. That humans still exist and spend is the key (to future earnings). For example, you are still eating 3 squares a day. You simply shifted your behavior from some percentage of home vs out. Now, for you, it's 100% home. Your total spend may be similar - it is not $0 because you are home. As such what you see is a dramatic shift in winners vs losers. Some stocks have gone up due to your shift in behavior while others have gone down.

3. The stock market is not the economy. Read that again.

4. The S&P500 is not filled with mom & pop restaurants who are negatively affected during the pandemic. They have no stock and therefore are underrepresented within the S&P500. Meanwhile, groceries are represented and your shift to home eating has resulted in their stock going up. On balance, the market is still down (barely) but it shows that some companies win during a pandemic while others lose. It is not a pandemic ruins all type scenario. Some stocks are up dramatically while others are down. The net effect is a market slightly down.

5. The US (and world) have gone through many times where deaths were much higher... stock market still went up and to the right over time. Again, total deaths during this pandemic are lower, and not zero sum. It's not different this time

6. No inflation, zero % interest rates, mean money can only gain returns in certain areas. Stocks are one of those places. Hard assets are another. I posit that the stock market is actually undervalued in this environment.
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goodenyou
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Re: How is this possible -- stock market continues to soar.

Post by goodenyou »

I will take a stab at as an economics novice. The pandemic caused a sudden financial shock to an otherwise very very healthy and vibrant economy of low unemployment and corporate profitability. The response to the virus was to inject liquidity in the form of increasing the M1 money supply to increase aggregate demand. This was an attempt to freeze the healthy economy while the country literally got over the "flu". Many investors believe that their investments are better off left alone during the thaw with the hopes that they continue to own parts of the businesses in the best economic place on Earth. Many academic economists believe that the cause of the Great Depression was poor execution of the Fed and its tight money policy at the time. Many believe that the Great Depression could have been avoided. Moreover, the fact the the US beat the Great Recession of 2009 with the stewardship of a student of the Great Depression (Gentle Ben) has given investors confidence that we can do it again.

That's my best shot at it!
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Re: How is this possible -- stock market continues to soar.

Post by Godot »

tvubpwcisla wrote: Mon Jul 13, 2020 10:57 am Markets are still trading at a huge discount from the all time highs. Expect more gains to come!
A small discount, not a huge discount.
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dbr
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Re: How is this possible -- stock market continues to soar.

Post by dbr »

sperry8 wrote: Mon Jul 13, 2020 11:57 am
dbr wrote: Mon Jul 13, 2020 9:31 am My portfolio value is now higher than it was in January 2020. I am a retiree actually spending money.

And yet between then and now 137,191 people have died in this country from a pandemic in which we have been totally isolated in our home from March 8 onward.

What is the understanding of how the market can maintain these prices in the face of current events?
1. The # of deaths is insignificant (not talking personally to those affected, solely from a #'s standpoint). Take a look at the % of deaths to gain perspective. Rank those deaths against total % of deaths annually. Overlay those %'s by age group to see who is leaving. This perspective would give you a better understanding of why 137,191 have absolutely no effect on the stock markets price. The numbers could be exponentially higher and would still have no effect. Also understand due to behavioral shifts, other illnesses have caused less deaths now. Think flu. Flu season in many areas was almost non-existent and deaths that occurred from it also gone.

2. Isolation in a home is not relevant. That is where your physical body is. The stock market does not care where humans sit. That humans still exist and spend is the key (to future earnings). For example, you are still eating 3 squares a day. You simply shifted your behavior from some percentage of home vs out. Now, for you, it's 100% home. Your total spend may be similar - it is not $0 because you are home. As such what you see is a dramatic shift in winners vs losers. Some stocks have gone up due to your shift in behavior while others have gone down.

3. The stock market is not the economy. Read that again.

4. The S&P500 is not filled with mom & pop restaurants who are negatively affected during the pandemic. They have no stock and therefore are underrepresented within the S&P500. Meanwhile, groceries are represented and your shift to home eating has resulted in their stock going up. On balance, the market is still down (barely) but it shows that some companies win during a pandemic while others lose. It is not a pandemic ruins all type scenario. Some stocks are up dramatically while others are down. The net effect is a market slightly down.

5. The US (and world) have gone through many times where deaths were much higher... stock market still went up and to the right over time. Again, total deaths during this pandemic are lower, and not zero sum. It's not different this time

6. No inflation, zero % interest rates, mean money can only gain returns in certain areas. Stocks are one of those places. Hard assets are another. I posit that the stock market is actually undervalued in this environment.
This could be a pretty balanced appraisal.
Cash is King
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Re: How is this possible -- stock market continues to soar.

Post by Cash is King »

RetiredAL wrote: Mon Jul 13, 2020 11:43 am
huskerfan1414 wrote: Mon Jul 13, 2020 9:48 am I think the answer is more simple than we believe.

1. People die. That's really a horribly blunt way to put it, but it is a fact of life. About 2.8 million a year in the US.

2. Most people understand the death rate is really what matters and the number of "positives" is due to more testing, even of those not showing symptoms. They know the shutdown will end, and should end, soon.

3. People are investing money in the stock market. They knew #2 back in March, April, and May and so they bought bought bought and I believe there were also a lot of "new" investors or investors that upped the ante to where they should be investing (my wife being one of them).

When people invest, the market goes up. When everyone sells, it goes down. People think the economy will start up again, and are investing accordingly.
Death is a fact. Most don't want to talk about it. Most don't even know what the normal number is - about 2.8 million a year in the US.

I think initially the scare numbers, being daily escalated by the talking heads, made the panic worse. Now reality has set in. Yes, some business area are hurting, other are doing just fine. Obviously, the market's forward outlook at this time is positive. Unemployment effects so far seem to have been largely been muted by the unemployment payout bonuses. The monkey in the room is what will happen when all the prop-ups expire?
+1 on both. The fear porn is over the top and I'll leave at that. FWIW, Homebuilders just saw the strongest June sales since the last housing boom in 2005.
Ron Ronnerson
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Re: How is this possible -- stock market continues to soar.

Post by Ron Ronnerson »

I work for a school and this chart was recently shared with us during an online meeting about how to approach opening up schools safely: https://www.cdph.ca.gov/Programs/CID/DC ... Group.aspx

The data is on California and it shows death rate by age group. About half the people who have died are over age 80. This age group makes up about 4% of the population. If the number of years lost and the quality of those years could be quantified, I think the data would portray a different image than we get when we just look at number of deaths. It is definitely sad when anyone dies and I don't mean to diminish that at all. However, as has been said above, death does happen. The fact is that this virus has mostly taken the lives of those who were considerably older and sicker than the median and the total number of years lost is not as high as it would have been had the virus affected everyone equally or was particularly dangerous to the young.
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Re: How is this possible -- stock market continues to soar.

Post by sean.mcgrath »

McGilicutty wrote: Mon Jul 13, 2020 10:58 am OP,

Now that I'm working from home I'm more productive than I've ever been.
This.

We have had a number of threads kind of related to this question, and I think we are getting our heads around the fact that there are relatively large wealth differentials, and tragically most of the unemployed are pretty far down the ladder. Yes, many small businesses are hurt, but take a look at the top ten firms by market cap, and check out how many of their employees are working from home (or building Teslas) just fine. We are in this eerie moment where some people (mostly poorer, but not all) are really hurting while others (mostly in the top 20%) are doing quite well. The retired are also, largely speaking, doing fine financially.

The real question for the economy is when do the top 50% start spending again.
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Re: Why is the stock market up? [thread multi-merge]

Post by Corsair »

TGA balance is at $1.63 trillion. Look at the chart, its straight vertical. https://fred.stlouisfed.org/series/WTREGEN

What happens when it reverses? I would assume the currency in circulation in US would go up. This would "juice" everything including stocks. What are the odds this happens right before the election?
All posts are my own opinions and are not financial advice.
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HomerJ
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Re: How is this possible -- stock market continues to soar.

Post by HomerJ »

The market may be a little crazy... but the stocks that have gone up do make sense, and the stocks that have gone down also make sense.

Some companies ARE making more money than before (and some are making less).

You can't find a bike at any of our local Walmarts... People are buying more bikes than before, and some company somewhere is making more money than they used to.
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.”
pcsrini
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Re: Why is the stock market up? [thread multi-merge]

Post by pcsrini »

The pandemic accelerated trends that were already in place:

1. Ecommerce replacing traditional retailers. Companies like Walmart & Kohls that embraced e-commerce earlier on survived. Sears, JCPenney and others declaring bankruptcy were behind the curve.
2. Streaming entertainment replacing theaters and live experiences. With the richness of content on Netflix, Amazon Prime, Hulu theaters were already in trouble, and the pandemic has accelerated this trend. Live sports may be the only exception.
3. Supply chains efficiency has increased with ecommerce and automation, lowering prices with fewer middle men from the goods produced in China to the consumers worldwide. Cloud providers have reduced operational costs. AI and automation increase efficiency and replace workers.
4. Social media replacing print and traditional media.

The companies driving the stock market growth i.e. Facebook, Amazon, Microsoft, Google, Netflix are Apple are all big beneficiaries of the acceleration of these trends. As with any efficient capitalistic system, older inefficient models are being rapidly replaced by these companies and the pandemic has greatly helped these winners. There was a chart recently on how much of the stock market growth has been contributed by these handful of winners versus virtually no growth from the rest of the companies.

So, maybe the market is efficient, and is rewarding these winners in a big way. Unemployment due to technology advances, the reduced influence of print media, small business closures, and the decline of traditional retail were already trends - the pandemic just accelerated what was already happening.
Last edited by pcsrini on Mon Jul 13, 2020 1:13 pm, edited 1 time in total.
garlandwhizzer
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Re: Why is the stock market up? [thread multi-merge]

Post by garlandwhizzer »

pcsrini wrote:

The pandemic accelerated trends that were already in place:

1. Ecommerce replacing traditional retailers. Companies like Walmart & Kohls that embraced e-commerce earlier on survived. Sears, JCPenney and others declaring bankruptcy were behind the curve.
2. Streaming entertainment replacing theaters and live experiences. With the richness of content on Netflix, Amazon Prime, Hulu theaters were already in trouble, and the pandemic has accelerated this trend. Live sports may be the only exception.
3. Supply chains efficiency has increased with ecommerce and automation, lowering prices with fewer middle men from the goods produced in China to the consumers worldwide. Cloud providers have reduced operational costs. AI and automation increase inefficiency and replace workers.
4. Social media replacing print and traditional media.

The companies driving the stock market growth i.e. Facebook, Amazon, Microsoft, Google, Netflix are Apple are all big beneficiaries of the acceleration of these trends. As with any efficient capitalistic system, older inefficient models are being rapidly replaced by these companies and the pandemic has greatly helped these winners. There was a chart recently on how much of the stock market growth has been contributed by these handful of winners versus virtually no growth from the rest of the companies.

So, maybe the market is efficient, and is rewarding these winners in a big way. Unemployment due to technology advances, the reduced influence of print media, small business closures, and the decline of traditional retail were already trends - the pandemic just accelerated what was already happening.
1+

I think that sums it up pretty well. Tech and globalization have transformed our economy creating both big winners and big losers. Those who have invested in the winners have done quite well. Much less so for the losers. Apart from investing, there's a serious complex question about whether these changes are on balance good or bad for our society as a whole. Wealth disparity has also likely been increased by these forces.

Garland Whizzer
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Re: How is this possible -- stock market continues to soar.

Post by Grt2bOutdoors »

Ron Ronnerson wrote: Mon Jul 13, 2020 12:12 pm I work for a school and this chart was recently shared with us during an online meeting about how to approach opening up schools safely: https://www.cdph.ca.gov/Programs/CID/DC ... Group.aspx

The data is on California and it shows death rate by age group. About half the people who have died are over age 80. This age group makes up about 4% of the population. If the number of years lost and the quality of those years could be quantified, I think the data would portray a different image than we get when we just look at number of deaths. It is definitely sad when anyone dies and I don't mean to diminish that at all. However, as has been said above, death does happen. The fact is that this virus has mostly taken the lives of those who were considerably older and sicker than the median and the total number of years lost is not as high as it would have been had the virus affected everyone equally or was particularly dangerous to the young.
Knowing this Ron, the idea of 25 year retirements or living to age 100+ just got thrown on its head for a number of retirees - either spend more now (win for the stock market) or someone else will spend it for you!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
guyinlaw
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Re: Why is the stock market up? [thread multi-merge]

Post by guyinlaw »

Nasdaq is at all time high, SP500 is up ~1% today. At the same time Bonds are flat or slightly up. 10Y and 30Y rates are flat -- Fed yield control and other actions.

Its Fed's desire to keep inflating this market and keep it flush with liquidity. Day trade gamblers are helping creating stories like TSLA and other tech stocks. There is no stopping this for now.
Time is your friend; impulse is your enemy. - John C. Bogle
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