The epidemic situation in the US is very bad. But why is the stock good?

The US stock market flourishes now, explained by an illusion: "Investors know what millions of people facing unemployment do not know&...

The US stock market flourishes now, explained by an illusion: "Investors know what millions of people facing unemployment do not know".

Death and despair are taking over America. The number of people applying for unemployment benefits in the last two weeks is about 10 times higher than the previous record. Perhaps that is also not fully reflected because the government's processing system is overloaded.
A series of businesses closed indefinitely. What is happening indicates the risk of another major recession taking place.

However, by the close of April 9, the S&P 500 was up 25% from its recent low, which is March 23.
For the whole week to April 9, the S&P 500 increased by 12.1%, the highest increase in a week since 1974. In fact, it only dropped about 14% this year, and up from 11 months ago.
The extreme parallelism of a free-falling economy and a good stock market encompasses a number of reasons.

There are two strong forces pushing in two different directions. Trade is so disrupted that it seems unbelievable in just a few weeks. But at the same time, stock investors are betting that strong interventions from Washington. Including the Fed injecting an additional $ 2300 billion will be enough for big businesses to rebound with little damage to long-term profits.

It was a battle between economic collapse and the federal government's pumping of money. For the stock market, at least the power of pumping money is winning.

Gene Goldman, chief investment officer of Cetera Investment Management said. The paradox is that the number of jobless claims has skyrocketed, which could even be considered useful for the stock market. Because it increased the political pressure on the National Assembly to strengthen rescue measures, in addition to the already approved 2000 billion package.

"Imagine you are a Democratic or Republican congressman discussing 16 million unemployed," Gene Goldman said, "It really creates a lot of pressure for bipartisan support for the next stimulus package." .

Companies that make large stock indices tend to have reliable access to capital. Especially after the latest Fed actions to support corporate lending. They are more likely than small and independently owned businesses to escape difficulties and rise above market share and profits.

Analysts expect the company's earnings to be relatively mildly affected. They think that the companies in the S&P 500 will only see a 8.5% reduction in income in 2020, with sales down only 0.1%, according to Factset.

In addition, what is shown in the stock market also due to technical factors. Specifically, some of the most active tickers on the market are the ones hardest hit by Covid-19. Examples are travel agencies, hotel chains, and airlines.
That shows motivation from short squeeze. It is a situation in which a stock price goes up, and many people end up selling their positions to cut losses, adding even more pressure to that stock's price.

At the same time, Saudi Arabia and Russia have clearly reached a ceasefire in the oil price war. The decision to reduce supply by 10 million barrels helped oil prices recover. This is good news for oil companies affected by the sharp drop in crude oil prices.

Finally, cash flows investing in safe investments, both from individual savers and the Fed, are pushing down long-term interest rates. This makes the future profits of shareholders, whether weak or uncertain, still more attractive than recovering high interest rates.

Stock prices are always based on what the world will be like in the future, not the present. During the global financial crisis, stock prices bottomed out in March 2009. The economy did not recover until July and the unemployment rate until October peaked.

Current market prices indicate that investors are expecting a quick recovery. "If this doesn't take longer than expected. That means it takes 3 to 6 months from when we" turn off "to" turn on "the economy, the market is already taking that into account and is looking ahead. before, "said Jim Paulsen, chief investment strategist at Leuthold Group.
According to him, the current market price does not take into account the case of viruses affecting up to 3-4 quarters.

In fact, the financial markets are betting at a certain level that things may return to normal soon. Stock prices are showing the assumption that a series of failures will not occur. That losing jobs on a large scale and reducing income will not lead to the closure of many businesses. Everyone will get a job back and will be ready to spend it when the public health crisis subsides.

Everything about this crisis took place very quickly for the economy from a complete recession to a terrible recession within a few weeks.
And the financial market is looking ahead to a possible future world. In particular, trillions of dollars from the Treasury and the Fed are launched to cure and prevent long-term damage of the pandemic.

"Stock markets in times of stress can be quite exciting," said Jason Pride, Glenmede's director of private equity investment. According to the New York Times, this is an unusual time. That's when we can only hope that stock investors can know something that millions of people facing tragic economic situations don't know.

Mr. Nerd

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High Tech Brain: The epidemic situation in the US is very bad. But why is the stock good?
The epidemic situation in the US is very bad. But why is the stock good?
High Tech Brain
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