The Stock Market has Nothing to do with Economic Reality
The stock market isn’t the economy.
There are a lot of private businesses in the U.S. that don’t reflect in the stock market. The stock market is forward looking while economic data reflects what happened in the past (backward looking). The stock market doesn’t reflect how the economy is “today”, instead it reflects where investors think the economy will be in the future (3,6,12+ months). When you look at March of 2009, stocks at that point had bottomed, with unemployment continuing to rise--peaking at 10% in Q4 of 2009 (6 months from the March 09’ bottom). Now keeping in mind that the stock-market is forward looking and that economic data is backward looking, we can make the assumption that speculation accounts for the difference that investors would price in if they had current economic data.
The stock market is more volatile than the economy.
Geopolitical tensions, external environmental affects, currency rates, also contribute.
The stock market is just a collective of speculators, with investors being optimistic towards the reopening of the economy. Markets have done well when news gets less bad.
Stimulus
Since mid-March, the fed has both cut interest rates to near zero, buying trillions of U.S. dollars of assets. Low interest rates encourage business to borrow at low costs. One of the things this does is set a floor for investors who assume that interest rates will be low for a while, giving them purchasing power. Multiple studies done that showed a good percentage of Americans using part of their $1,200 stimulus checks to trade stocks” (Fitzgerald, 2020). This can be directly correlated with Robinhood new accounts peaking 4 weeks after the checks began to ship (Bloomberg, 2020) and also Google Trend all time high’s for words like “Buy stocks” ( Google , 2020).
My point: A handful of companies inflate the stock market in terms of single ticker securities with leading market-caps. For the S&P600 for example, has 5 stocks which compute to over 20% of the index. Microsoft , Apple , Amazon, And Google , all have market caps of $1+trillion, with Facebook not far behind at 670b. These companies are doing well in the current market environment.
According to Pew Research, only 14% of U.S. families are invested in the stock market, with 52% having “some” investments via 401k or IRA’s. This mean that the gains disproportionately benefited a minority of the country. I think that it’s clear the stimulus positively affected Wallstreet while leaving Mainstreet behind.
12:17:17 (UTC)
Wed Jun 10, 2020
There are a lot of private businesses in the U.S. that don’t reflect in the stock market. The stock market is forward looking while economic data reflects what happened in the past (backward looking). The stock market doesn’t reflect how the economy is “today”, instead it reflects where investors think the economy will be in the future (3,6,12+ months). When you look at March of 2009, stocks at that point had bottomed, with unemployment continuing to rise--peaking at 10% in Q4 of 2009 (6 months from the March 09’ bottom). Now keeping in mind that the stock-market is forward looking and that economic data is backward looking, we can make the assumption that speculation accounts for the difference that investors would price in if they had current economic data.
The stock market is more volatile than the economy.
Geopolitical tensions, external environmental affects, currency rates, also contribute.
The stock market is just a collective of speculators, with investors being optimistic towards the reopening of the economy. Markets have done well when news gets less bad.
Stimulus
Since mid-March, the fed has both cut interest rates to near zero, buying trillions of U.S. dollars of assets. Low interest rates encourage business to borrow at low costs. One of the things this does is set a floor for investors who assume that interest rates will be low for a while, giving them purchasing power. Multiple studies done that showed a good percentage of Americans using part of their $1,200 stimulus checks to trade stocks” (Fitzgerald, 2020). This can be directly correlated with Robinhood new accounts peaking 4 weeks after the checks began to ship (Bloomberg, 2020) and also Google Trend all time high’s for words like “Buy stocks” ( Google , 2020).
My point: A handful of companies inflate the stock market in terms of single ticker securities with leading market-caps. For the S&P600 for example, has 5 stocks which compute to over 20% of the index. Microsoft , Apple , Amazon, And Google , all have market caps of $1+trillion, with Facebook not far behind at 670b. These companies are doing well in the current market environment.
According to Pew Research, only 14% of U.S. families are invested in the stock market, with 52% having “some” investments via 401k or IRA’s. This mean that the gains disproportionately benefited a minority of the country. I think that it’s clear the stimulus positively affected Wallstreet while leaving Mainstreet behind.
12:17:17 (UTC)
Wed Jun 10, 2020
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