there may be a simple reason why wall street isn't reflecting the full damage to the economy

[unblock]

the stock market isn't the entire economy. it's a big subset, but the businesses in the stock market all have one thing in common -- they all became public companies that sought millions of dollars at some point.

this alone makes them rather different companies, in the aggregate, than much of the economy. what kinds of companies do this? while the economy is composed of all businesses that provide goods and services, the kinds of businesses that produce goods are far more likely to need major capital investment than the kinds of businesses that provide services. particularly the kinds of businesses that provide services directly to consumers.

the hardest-hit businesses are the small, local businesses that provide a service directly to consumers, that simply can't do that under strict social distancing guidelines. nail salons and hairdressers, for example. there aren't many of these listed on the stock market as far as i know.

many businesses are kind of a combination of goods and services, such as bars. they provide goods (alcohol), but much of the reason to go to a bar is the service (the atmosphere and the fact that someone else is making the drink and handing it to you and cleaning up the mess). the service part is suffering, but people can still drink at home and boy are they ever these days.


now, some corporate entities are certainly suffering, such as the airlines, where passenger travel is down a whopping 96% or car makers, where car usage and purchases are way down, and the stock market reflects this. however, many stocks are doing ok, because a lot of the goods are still flowing, better than the services, anyway. in the aggregate, a company that sells corn, well, people are still going to eat corn one way or another. less in restaurants, more in frozen foods and cans and snacks and such, but they'll still eat corn. so a big business that sells corn will still do fine.



the longer this goes on, the more the stock market will reflect that pain of local businesses as they don't reorder equipment and supplies that public companies do make. that nail salon uses goods that public companies make, so eventually the public companies will suffer more, but the bigger companies will suffer less if the economy gets back to something like "normal" soon.

[NRaleighLiberal]

1. Krugman has a great op ed about this in the NYT today

[Maeve]

2. From Krugman's article--Crashing Economy, Rising Stocks: What's Going On?

The main answer, surely, is to consider the alternative. While employment eventually recovered from the Great Recession, that recovery was achieved only thanks to historically low interest rates. The need for low rates was an indication of underlying economic weakness: businesses seemed reluctant to invest despite high profits, often preferring to buy back their own stock. But low rates were good for stock prices.

Did I mention that the stock market is not the economy?

None of this should be taken as a statement that current market valuations are exactly right. My gut sense is that investors are too eager to seize on good news; but the truth is that I have no idea where the market is headed.

The point, instead, is that the market’s resilience does, in fact, make some sense despite the terrible economic news — and by the same token does nothing to make that news less terrible. Pay no attention to the Dow; keep your eyes on those disappearing jobs.

https://www.nytimes.com/2020/04/30/opinion/economy-stock-market-coronavirus.html?action=click&module=Opinion&pgtype=Homepage

[unblock]

3. thanks. he's getting at some of the other factors for the differences

people with money can invest in the stock market easily, but can't invest in local businesses easily, and much of the federal liquidity help is going to the big businesses (who, as i noted, don't need it as much) and less to the local businesses and workers who are severely hurting.

i think the underlying problem is to treat "the economy" as monolithic. this recession more than any other, is affecting certain parts of the economy much, much more than it is affecting others, and not following the traditional differences.

for example, cheap entertainment and low-end restaurants do fine during most recessions, but these businesses are getting hammered right now.

[underpants]

8. Two more paragraphs

Well, whenever you consider the economic implications of stock prices, you want to remember three rules. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy.

That is, the relationship between stock performance — largely driven by the oscillation between greed and fear — and real economic growth has always been somewhere between loose and nonexistent. Back in the 1960s the great economist Paul Samuelson famously quipped that the market had predicted nine of the past five recessions.

[wishstar]

4. The larger companies were assured of bailouts and low interest loan availability

Never before in history has the Fed and the Treasury and Republican Senate demonstrated such willingness to dole out virtually unlimited trillions of parachute money to the banks and large companies while keeping interest rates so low near zero so that investors consider the stock market as absolutely the only possible investment where they could earn a return.

[Wounded Bear]

5. The Stock Market has been largely decoupled from the general economy...

More and more, it is a casino, wherein stock values are determined only by the bidding competition on the floor of the market, and less and less on the actual value of company assets. Much of the last growth spurt in the market (since the Trump tax boost) has been froth.

[bluestarone]

6. One thing and one thing ONLY

This market is as FALSE as our president is!

[uponit7771]

7. Trump pump and dump ... PERIOD. This is the biggest sell in May Go Away in recent years all lead

... by Red Don himself saying the economy can be opened safely.

The second fall of the indexes will be when indicators of the virus being suppressed blow up because all projections were set by US following SD measures.

[dawg]

9. The market believes the worst of this is already over.

If the facts start proving them wrong, price-discovery will gradually start to happen and lots of people will end up looking stupid.