I wonder though if coronavirus is additionally the excuse (or maybe "catalyst") for a correction that was going to happen sooner or later anyway.
My mental model of the stock market recently is a bunch of people driving too fast on the highway during a snowstorm. As conditions steadily worsen they all know they're not in control, but nobody else is slowing down so they don't either. It just takes some warning sign -- like a truck that's slid off the road -- then they'll all acknowledge the speed is unsafe and slam on the brakes together.
> Companies are already warning about significant impacts on quarterly earnings. Those are actual, real things — not people just realizing they got a little too excited.
But it's not clear (to me) the stock market prices are tied at all to actual, real things. Maybe relative prices of different companies reflect who's doing well compared to whom, but overall the market is up when people expect other people to continue buying and down when they worry they won't (both self-fulfilling prophecies). Maybe the only reason the market dips before recessions is investors expect a decrease in the total amount being pumped into the market by average people's 401k's.
Yeah, my bet is that the virus is just helping the market get back to normal by getting people to start taking their values seriously. The market has been seriously inflated for a while.
It is interesting, in light of the financial situation, how China and the US are handling the virus. Too attached to the status quo and trying to prevent a more serious correction by downplaying it? Or deliberately under-responding for other reasons?
This pandemic is almost certainly going to cause a global recession this year. The market will not return to all time highs quickly, but once a vaccine comes out you can expect a "relief rally."
Is the stock market really needing to recover? I don't pay much attention to it but whenever I look stocks and indexes they seem to have gone down a little but not to pre-pandemic levels. What am I missing?
Exactly. When the virus is at its worst is when the market will start to bounce back because recovery will be priced in. The markets are all about the value of the future. That’s why it’s all kind of a joke to me. Its based on hopes and dreams(or fears and nightmares) instead of how a company is actually doing.
Any idea why the stock market is still holding up? Whether or not you think the virus will be resolved quickly, the economy has now taken a serious hit. Is the feeling that the government stimulus actions will be enough to completely erase the Covid damage? Will they resolve the shaky fundamentals and sky-high valuations we saw heading into this mess? Perhaps I'm a simpleton for expecting rational markets, but it seems like equities should be falling further.
The stock market is very divorced from the economy and global events at present. The money faucets have been pumping non stop to stopgap all liquidity shortages within financial trading. As long as you grease the wheels, the market won't collapse.
That said, the coronavirus has also been ignored as a whole until now. AAPL's downward guidance is a big, big fucking deal and is almost certain to cause a short term impact on prices. However, it'll also be transitory much as the rest of the shit is.
Eh, it probably buffers against overreaction, especially when a correction in fundamentals is being mixed with a reaction to new pressure.
But this is still a good point: if the market really is overheated then short-term monetary policy won't change that, and we can expect a lasting hit regardless of how disease issues play out. And it's not necessarily going to be obvious what's market movement and what's disease-related; I wouldn't be surprised if some over-hyped companies seize this as a chance to lower guidance faster than they normally could without spooking investors.
Your example is hogswash. Absolutely, the perceived long term value dropped 30% as people feared a million deaths (with lockdown) and dead bodies piling up outside hospitals across the country (with lockdown, and not just New York City). The stock market is rising now that people realize the pandemic, while still bad, isn't going to be as bad as those predictions. Our perception/understanding of the pandemic has rapidly changed.
Counter point: beginning of 2021, for weeks I was wondering why the markets were not reacting to Covid.
Only when travel restrictions were introduced, and only when they were introduced to the US, the market started taking notice.
Does the market extrapolate future earnings and macro economic trends, sure. Do some people have secrete insights beyond that? Sure. But I'd say the market as a whole is pretty stupid and reactive.
$11.5 trillion dollars has been wiped off the stock market in the past few weeks[1]. That's not just the virus because there's an oil price war going on too, but it does seem like suggesting it'll be back to normal in 6 months implies you don't understand the scale of the problem.
I'm neutral on the market right now, I don't think it's entirely unfairly priced. NASDAQ is in the best shape of the indices because tech companies don't seem hugely affected by all this insanity. Most major investment banks are expecting a huge boom in Q4/Q1 and return to business as usual. COVID new cases are trending downwards across all major economies (except the US, to follow soon) [1]
I'm actually feeling better now than I was in October 2018. Rates are lower, tons of financial stimulus, a waning problem and a warming stock market.
The market drop is not just about the outbreak but because prices were too high to begin with.
Look at Boeing, it has political teflon, the stock was barely affected by the MAX situation. Now it has all hit, things are so bad they might not restart the 737 line.
My hot take is that the virus isn’t affecting future cash flows enough to warrant a crash, but as is typical, it sure as heck is a big enough catalyst for “risk off” to take hold and most pent-up mispricings to finally normalize, which according to some would be a huge pullback or crash.
The market incorporates news quickly, such as that there is a pandemic and it is going to have bad effects. Then it essentially forgets about it. I suspect most of the 12% is a response to government actions to control the pandemic and to the recent news that it is coming under control. You will see another drop if relaxing controls leads to another covid spike, and when economic effects appear on corporate financial reports, and when long term job losses are reported. Those are perfectly foreseeable, but in the meantime the market will likely go up as the memory of why they went down in the first place fades.
I see 3 things driving the market now. An overdue market correction, reasonable reaction to supply chain issues and an irrational reaction to the virus.
A temporary boost to the market gives more time for the true long term impact to the supply chain to play out. It may turn out that the boost only gave a short respite but it may also turn out that it saved the market unneeded turmoil.
A short term boost also gives people a chance to take a breath, step back and take a more rational approach.
I also wouldn’t overplay the market correction. We are back to where stocks were in Oct last year, when there were no concern about the virus.
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