INSUBCONTINENT EXCLUSIVE:
What on earth is the stock market doing?
Death and despair are all around
being artificially held back by overloaded government systems
Vast swaths of American business are shuttered indefinitely
the S-P 500 was up 25 per cent from its recent low March 23
There are answers as to why
things, doing just fine.
Two powerful forces are pushing in opposite directions
Commerce is being disrupted to a degree that seemed impossible just weeks ago
their long-term profitability.
It is a battle between collapsing economic activity and, to use a silly meme from finance Twitter, the
said Gene Goldman, chief investment officer of Cetera Investment Management, the shockingly high numbers of jobless claims can even be
viewed as helpful to the market, as they increase political pressure on Congress to scale up rescue measures beyond the $2 trillion
They may be more likely than small, independent-owned businesses to weather the economic storm and come out on the other side with greater
market share and profits.
The analysts who project corporate earnings are, in the aggregate, forecasting a relatively mild hit
They expect the companies that make up the S-P 500 to experience only an 8.5 per cent decline in earnings in 2020, with revenue falling a
mere 0.1 per cent, according to FactSet.
Then there are technical factors.
Some of the strongest performers in this market rally have been
the companies most severely affected by the coronavirus crisis, like cruise lines, hotel chains and airlines
positions, turning the small rally into a large one.
And Saudi Arabia and Russia apparently reached a truce to reduce oil output, causing a
rally in oil prices, which is good news for oil companies that have been hammered by plunging prices of crude.
Finally, the gush of money
into safe investments, both from private savers and the Fed, is pushing down longer-term interest rates
That makes even weak or uncertain future earnings for shareholders more appealing than they would have been when interest rates were
higher.
But just because there are reasons for the stock market rally does not mean those reasons are good ones.
Stock prices are always
based on what the world will look like in the future, not the present
In the global financial crisis, stock prices bottomed out in March 2009
The economy did not begin expanding again until July, and the unemployment rate would not peak until October.
But current market pricing
six-month event from the time we turned the switch on the economy off to when we turn it on, then markets have already accounted for that
effect, financial markets are betting that there is some reasonable approximation of normal on some foreseeable horizon.
The current pricing
assumes that a cascading series of failures will not happen
That widespread job losses and drops in income will not cause the mass closure of businesses
That people will have a job to go back to and will be willing to spend when the public health crisis ebbs.
Everything about this crisis has
been incredibly fast, with the economy going from full health to devastating recession within weeks
In that sense, the financial markets are preemptively adjusting to a possible world in which trillions of dollars from the Treasury and the
Pride, chief investment officer of private wealth at Glenmede
that millions of people facing a catastrophic economic situation do not.
