Stock Market and Covid

Does anyone else think its weird the stock market bounced back so well after the march plunge?

I can understand how individual companies might have actually benefited from Covid, including some tech stocks. But with historically ridiculous unemployment figures and GDP numbers, I would think Wall Street would be a bit gloomier.

I get the whole, buy em while they are cheap idea. and that the stock market is priced on the future. Just because earnings are down today doesn’t mean they will down next year.

But i don’t think reality has set in yet.

I think it’s the opposite of this. If the market is wrong here, and it may well be, it’s not because it’s slow to absorb what’s happening, it’s because it’s getting too far ahead, discounting too much - overly optimistic in expecting a V-shaped recovery next year.

The market collapsed in March when we just didn’t know much about this disease. I think what has happened is that we now know it’s not the end of the world, and the news on vaccine development seems positive. On a human level it’s horrific what the U.S. administration has allowed to happen, but the cold-hearted economic reality is that it’s killing almost exclusively elderly people.

Of course, it’s also true that there’s a huge loss of economic confidence, people are scared both for their health and their financial security, and everything has slowed down dramatically in the short term. But the value of stocks is the present value of all future earnings. So the pricing of the stock market is making the case that economic activity will do a V-shaped recovery next year, and if so the loss of a year’s earnings does not justify a big discount in prices compared to where we were before this started. The key, of course, is not going bust before things recover, and the big stock market indices monitor megacap companies that are generally in a better position to survive a downturn. Small cap indices are still down around 10%, but “small” here still means billion-dollar market cap. The greatest existential risk is to small private businesses, and that’s where the lasting damage is being done. None of that is reflected in the Dow or the S&P.

Not to mention that there are many countries worldwide that are doing fine-ish w Covid, though the US isn’t one of them. The market reflects all of economic activity, not just American concerns (though these def loom large).

Yes. For investors who aren’t diversified into international stocks, I think there’s a strong case for making that switch with some proportion of your investments after a more than a decade of U.S. outperformance. After China, the U.S. is still the best performing major market this year.

The index averages bounced back because of the way they are constituted.

Almost all of the money is going into big cap tech names and they are propping up the averages. The higher they go, the more weight they carry in the indexes.

As of a week ago, Facebook, Apple, Amazon, Google, Microsoft, and Netflix made up 24.6% of the value of the S&P 500. It’s higher now.

6 companies out of 500.

If you look at almost any chart away from tech, like any bank or real estate or industrial they all look the same - horrible.

As long the money flow stays this way, it is telling you that the market is betting on a zombie Covid economy.

When tech starts selling off and the other areas start getting bought, that will tell you the market thinks the rest of economy is going to start to recover.

And the Fed is backstopping a lot of this.

“The market” is not the economy.

My theory is that most of the money the fed are pumping into the economy is ending up in the stock market. Mostly because there is no where else to put it. If the feds cut off their bond buying and unemployment assistance I think we’ll see it crater again.

I think the new economy due to COVID is a lot of vapor so I’m mostly buying stocks that are getting pounded right now and have ridiculous dividend yields. I expect most of them to double in the next 12 months as long as they aren’t forced to cut their dividend and then I’ll still be making my 7% too.

Wealthy people are searching for where to put their money. It’s gotta go somewhere.

Interestingly, Berkshire Hathaway recently (May) sold virtually all of its $12.3B shares of Goldman-Sachs. They have also not bought any new stocks in 2020. They are just sitting on $150B of cash. Waiting and seeing.

This. Inflation is caused by too many dollars chasing too few goods. But the people who buy ordinary consumer goods haven’t had a real increase in income for decades. And the people with all the money can eat only so many steaks, even buy only so many Merdedes. So they buy property and securities because, what else can they do with their money?

That’s no longer true. He spent $10B on Dominion Energy at the beginning of July and just today he increased his position in BoA.

What happens if the V-shaped recovery doesn’t happen? Common wisdom was that Covid would follow the same path as the flu. Die out abit in the summer maybe have a second wave in the fall/winter. Our first wave never really went away. What if this endemic?

And i am a bit concerned about Fed Policy. Not a conspiracy theorist, but there is is a fine line between supporting the economy, balancing inflation/unemployment and simply propping up the stock market.