Do you think Dow 18,000 was the bottom?
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Mountain skier
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When the market dropped in March many investors bought at sale prices which of course helped increase share prices. Many investors are optimistic that the market is the place to be. They believe in USA's future.
The virus has been a huge shock. Perhaps reality has not set in. Perhaps people cannot conceive that the world has suddenly become so awful and scary when just very recently life was so good to investors.
The reality is most of main street is suffering badly. Seems historically the USA markets have had a few pessimistic reality checks and dropped more than just once. We have only had one bad drop since the virus nightmare began. Many investors, including the optimistic folks believe a second significant drop will occur. Of course, if the second significant drop occurs the optimistic investor will buy up a bunch more on-sale share prices.
The virus has been a huge shock. Perhaps reality has not set in. Perhaps people cannot conceive that the world has suddenly become so awful and scary when just very recently life was so good to investors.
The reality is most of main street is suffering badly. Seems historically the USA markets have had a few pessimistic reality checks and dropped more than just once. We have only had one bad drop since the virus nightmare began. Many investors, including the optimistic folks believe a second significant drop will occur. Of course, if the second significant drop occurs the optimistic investor will buy up a bunch more on-sale share prices.
brewer12345
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You either stick your cash in the highest yielding safe option (bank account) and accept that as the cost of staying safe, or you choose to accept some risk. I am mostly in cash. To offset the drag I am pursuing some deposit options, but I am also trying to shift to a barbell strategy of almost all cash with little bits of other stuff to juice my yield enough to earn at least a nominal return. It is proving to be challenging.
Part of the reason you get so many different opinions is that there is quite a wide range of financial situations among the group.
For the individual that has an extremely low withdrawal rate i.e. ~1-2% (large cushion), he or she is fortunate to have the option to be either real aggressive or real conservative with little risk of failure over a 30 year horizon or even longer....largely becomes personal choice....so you would expect some folks to get near extremes here.....possibly all cash or all stock and everything in between without worry of failure. I think it was Schwab who put up some data recently that had very high net worth folks getting more conservative in this crisis.
Which ever way someone goes, they are likely in large part, trusting their intuition. People tend to hold these intuitions with a high degree of certainty even when they are wrong. Physiologists have studied this in detail... they find that expert intuition is learned through multiple experiences with rapid feedback. In these cases most of the time you can trust your intuition to be right. But in markets, where the world in which they reside is highly irregular, it's very hard to imagine someone developing expertise. You cannot because the world is not regular enough to learn rules. Daniel Kahneman did a good talk at the CFA institute a few years back explaining this. His advise is that if someone tells you they have a strong feeling about a financial event about to occur, the safe this to do is not to believe them.
Here is a link to the talk.
https://annual.cfainstitute.org/201...n-expertise-bias-and-the-investment-industry/
For the individual that has an extremely low withdrawal rate i.e. ~1-2% (large cushion), he or she is fortunate to have the option to be either real aggressive or real conservative with little risk of failure over a 30 year horizon or even longer....largely becomes personal choice....so you would expect some folks to get near extremes here.....possibly all cash or all stock and everything in between without worry of failure. I think it was Schwab who put up some data recently that had very high net worth folks getting more conservative in this crisis.
Which ever way someone goes, they are likely in large part, trusting their intuition. People tend to hold these intuitions with a high degree of certainty even when they are wrong. Physiologists have studied this in detail... they find that expert intuition is learned through multiple experiences with rapid feedback. In these cases most of the time you can trust your intuition to be right. But in markets, where the world in which they reside is highly irregular, it's very hard to imagine someone developing expertise. You cannot because the world is not regular enough to learn rules. Daniel Kahneman did a good talk at the CFA institute a few years back explaining this. His advise is that if someone tells you they have a strong feeling about a financial event about to occur, the safe this to do is not to believe them.
Here is a link to the talk.
https://annual.cfainstitute.org/201...n-expertise-bias-and-the-investment-industry/
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I don't think the market reflects the extent of the damage that is happening to the global economy. Restarting the economy in the US (much less the global economy) is going to be difficult because different states will be doing different things. Totally out of sync.
As the pressure to re-open the economy builds there are several factors that are important. Even if a business opens that doesn't mean that customers will respond accordingly - if fact until more is known I would bet that caution will be the norm.
Can we count on the FED continuing to rescue the market even as we see them delve into junk bonds? Can Congress continue to subsidize workers and even more so businesses until things stabilize? Bankruptcies, cuts in capital spending, earnings that aren't reflective of current events....everyone suspending guidance, and so far not even a mention of the oil situation. I think for the foreseeable future.........CASH IS KING
I will jump in again, and don’t think all the connections are made in all the algorithms to truly understand the potential recession. As a person with many years in Supply Chain, the disruptions are truly unprecedented and will take months to get back to normal, which infir one don’t think can be priced in.
Airlines are down 90%, this affects rental car company’s, Uber and Lyft, Rental cars replace a portion of their fleet monthly with new cars from car manufacturers, car manufacturers buy raw materials to produce them, rental car companies, sell their used cars in the market. Tire manufacturers depend on new cars for Manufacturing, all of these companies use oil and employees. This is a chain reaction across every industry, and I only covered a couple, where layoffs, trucking companies, ports, manufacturers, rental car companies, used car market, new car market will cost jobs for at least 12 to 18 months to sort itself out.
These are the reasons I believe the market bottom is well below 18,000 over the next 12 months. My money is in short bearish mutual funds and very few long mutual funds that I am willing to hold. So I will make some money on the downward slide I expect.
I always say, cash is a position, and it gives you options to rapidly put to work when the opportunity presents itself. Not all money need have a return for many on this site. Better to lose out on 2% in CD’s, it a 10% or 20% drop in equities presents a better opportunity 3 to 6 months from now
brewer12345
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Heck, right now 25% of the nation's pork processing capacity is shut down and farmers are starting to euthanize hogs because they have nowhere to sell them and can't afford to feed them. Two weeks to meat shortages.
No way that sort of thing is in the algorithms.
I have a smoker, but only need one hog! But this is almost like oil two days ago going below zero, kill the hog and pay me to come get it to take it off their hands since they can’t afford to feed them. Pork Belly Futures anyone?
brewer12345
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Pork bellies are the processed stuff that comes out of the processing facility. If you get a whole hog, you better know how to turn a 250# animal into meat.
You don’t need to be a fortune teller to have an informed opinion and ask questions. Not one person has said “X” WILL happen, but ask or opine what seems logical or likely. Most posters with any kind of longevity (20+ years) know enough and have experienced enough to know this is not any kind of typical market turmoil. I have no answers either, just opinions.
atmsmshr
Full time employment: Posting here.
And now for a dash of optimistic prognostication.
After the senate leader publicly said no bailouts to the states this week, governors will be under pressure to open their economies sooner. Hopefully, most will do better than Georgia to protect citizens. Still, the workers and consumers will have a choice how much to participate in the economy once the lockdowns ends. That is the start of the recovery, and unfortunately second wave. But the mindset of many vulnerable has changed - and habits have changed potentially for the better.
For decades, western corporations have chased the 'China Price'. For the USA, that means we have exported our inflation of labor costs with electronic dollar supply expanded and selling federal debt to communist China. Now, with a coming/ongoing collapse in demand, all the supply chains will be interrupted. Thankfully, a lot of that unemployment will be exported - to China for which I shed not a tear. However, Western coastal ports gathering up the shipping will suffer from the slack.
After services based businesses clear bankruptcy - those physical assets will still be there for later use. Demand will be much less, but some of those assets can be rebooted, particularly with low borrowing costs to restart a business after bankruptcy.
Longer term.
Supply chains will shift closer to home and away from China. That capital reinvestment should prove better futures for central and south America (and more hopefully Mexico to move them away from socialism). Some of those manufacturing jobs will come back to the USA, especially in light of labor surplus and low capital borrowing costs. However, this means consumers will have some inflation in goods that have been absent for awhile. This restructuring should prove to be a boon to manufacturers of robotics and 3D printers. And resumption of rare earth mining closer to USA.
Infrastructure - Washington DC will get around to doing the right thing and pass an infrastructure bill in the next year. Surplus labor, low borrowing costs will fuel the boom. Good news for construction companies and manufacturers like Cat and steel suppliers.
More white collar jobs will have increased flexibility for work from home, resulting in a reduction in pollution to help slow global emissions.
Nostratomsmasher
After the senate leader publicly said no bailouts to the states this week, governors will be under pressure to open their economies sooner. Hopefully, most will do better than Georgia to protect citizens. Still, the workers and consumers will have a choice how much to participate in the economy once the lockdowns ends. That is the start of the recovery, and unfortunately second wave. But the mindset of many vulnerable has changed - and habits have changed potentially for the better.
For decades, western corporations have chased the 'China Price'. For the USA, that means we have exported our inflation of labor costs with electronic dollar supply expanded and selling federal debt to communist China. Now, with a coming/ongoing collapse in demand, all the supply chains will be interrupted. Thankfully, a lot of that unemployment will be exported - to China for which I shed not a tear. However, Western coastal ports gathering up the shipping will suffer from the slack.
After services based businesses clear bankruptcy - those physical assets will still be there for later use. Demand will be much less, but some of those assets can be rebooted, particularly with low borrowing costs to restart a business after bankruptcy.
Longer term.
Supply chains will shift closer to home and away from China. That capital reinvestment should prove better futures for central and south America (and more hopefully Mexico to move them away from socialism). Some of those manufacturing jobs will come back to the USA, especially in light of labor surplus and low capital borrowing costs. However, this means consumers will have some inflation in goods that have been absent for awhile. This restructuring should prove to be a boon to manufacturers of robotics and 3D printers. And resumption of rare earth mining closer to USA.
Infrastructure - Washington DC will get around to doing the right thing and pass an infrastructure bill in the next year. Surplus labor, low borrowing costs will fuel the boom. Good news for construction companies and manufacturers like Cat and steel suppliers.
More white collar jobs will have increased flexibility for work from home, resulting in a reduction in pollution to help slow global emissions.
Nostratomsmasher
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yakers
Thinks s/he gets paid by the post
Don't have a subscription to the Financial Times but just the heading tells a story:
Equity valuation
Investors baffled by soaring stocks in ‘monster’ depression
Gap between financial markets and global economy yawns wider
Equity valuation
Investors baffled by soaring stocks in ‘monster’ depression
Gap between financial markets and global economy yawns wider
WyomingLife
Recycles dryer sheets
+4960
+/- 168%
Sure, the longer the shut down means more shortages in food supplies we will see. Even harsher conditions may come with a second wave of COVID spread if we reopen prematurely.
Mountain skier
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PE ratio is still well above long-term market average. Very realistically the market drops to below market average for awhile. So yes, DOW still might drop to 18,000
targatom2019
Recycles dryer sheets
Markets already looked forward to 4th quarter and already factored in big negative 2nd & 3rd quarter earnings and GDP. Support level with all the pension funds are too strong and the FED injected so much $$$ into the economy so no, we will not see DOW 18k again. I see a DOW 29k by the end December.
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targatom2019
Recycles dryer sheets
We can say good bye to DOW 18K now and looking forward to DOW 30K by December 2020. !!!!!!
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Finance Dave
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Yes
I agree with the PE ratio being up too high so the market is over valued.
Why is there a market rally in a pandemic? That does not make sense. But wait. I have a saying: If it does not make sense, then it's politics.
We all know who is in power now. We all know that the Fed is semi-independent. We all know that the Treasury Department is not. I like to speculate on whether there is a connection between the market rally and the people currently in power.
Too many people are focused on the opening up of the economy in June and July. Not enough attention is being focused on the election in October and November. If my speculation is true, then the stock market may potentially crash again when we get near or after the actual election.
Dtail
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
100% agree, but you are (probably) also assuming that the Admin changes hands. If it doesn't, then I believe the propping up of the market could very well continue.
As stated before, there also could be a chance for a downswing in the 3rd quarter if the economy outlook at that time becomes more negative.
Why is there a market rally in a pandemic?
It does not make sense. I think that what Government may do is invest / support the Market prices with newly created money, buying at low price, wait till economy will reopen, Market will regain lost values and sell with good profit at that time.
It does not make sense. I think that what Government may do is invest / support the Market prices with newly created money, buying at low price, wait till economy will reopen, Market will regain lost values and sell with good profit at that time.
I like to list the short term risks to understand the overall risk to the stock market:
1. Election risk that was already covered.
2. Virus risk in the event opening the economy too soon causing another shutdown.
3. Unemployment risk in the event opening the economy does not result in 100% re-hiring.
4. Bankruptcy risk in the event opening the economy does not result in sufficient revenues causing companies to fold and causing even more unemployment.
5. Printing too much money resulting in foreign investors fleeing the USA due to possible inflation. You do not see many foreign investors in venezuela as an example.
6. No vaccine risk in the event no vaccine is developed in 2020 or 2021. This means businesses that cannot avoid social distancing such as sports, large restuarants, etc will be hurt.
7. The virus mutates causing the virus to be like the seasonal flu and will never go away.
8. Economic recession even after the economy is opened because of permanent damage to the economy.
9. A limit on the number of bailouts. The government cannot save everyone.
IMO, there are more downside risks than upside. This also means the chances of the dow reaching 29,555 again is low unless all nine risks are eliminated or are not significant. The dow is more likely to decline once reality sets in. The economy needs time to heal. Only a miracle will allow a "V" shaped recovery.
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