Why the Melt Up...?

[PatrickW]

How the heck can the market possibly be going up as fast as it is, when it seems that exactly the opposite should be happening....?

I just don't get it.

There's GOT to be something that I just don't understand when it comes to the markets.

- Patrick

 

[Amethyst]

If we could answer that, we'd all be too rich to hang out on the ER forum complaining about our 401Ks and the lack of TP at Walmart.

Instead, we'd be hanging out on our private, fully-stocked islands, to which we flew several weeks ago on our private Gulfstream jets.

 

[Toocold]

I think the significant melt down was due to a severe liquidity crunch (e.g. corporations accessing credit lines) to save up for the shut down, as a result of the virus. Once that was addressed by the fed actions, the market likely reflects where we should be reflecting where we are with the disease. Again, the market reflects not the now but estimated to be to be 6-12 months from now.

 

[UnrealizedPotential]

I am wondering the same thing. I don't have a good answer for it. If we accept the premise that the market will start recovering before the virus peaks, since it is forward looking, then that might help explain it. Bottom line, I don't know.

 

[ExFlyBoy5]

There are simply too many variables at play on a NORMAL day to figure out moves in the market. HFTs, algorithms, fear/greed, just to name a few. Throw in a little "never seen this before!" and you can just forget it. Or, tune into CNBC/Fox Business/Bloomberg/Cheddar and they will have "experts" rambling for hours telling us EXACTLY why it's doing what it's doing.

 

[OldShooter]

... There's GOT to be something that I just don't understand when it comes to the markets. ...

Well, thing one is that price action is close enough to random that assuming random is a good going-in position.

Thing two is that markets are not totally rational. Richard Thaler's "Misbehaving" is an easy read and well worth the effort for any investor IMO. For less effort, here is a 42 minute video where two Nobel winners discuss the question: "Are Markets Efficient?," which is very close to the question you implicitly have: "Are Markets Rational?" To the extent that markets are not rational, you can be excused for not understanding.

https://review.chicagobooth.edu/economics/2016/video/are-markets-efficient

 

[jim584672]

I think this posting marked the end of the melt up.

 

[statsman]

I think this posting marked the end of the melt up.

Been seeing that a lot here lately. Someone starts a thread to make a point, and the initial post becomes OBE. Kind of like yesterday's posts about how the number of deaths had "decreased" on Sunday, which to them meant we had flattened the curve. Hours later, several states reported their death counts, and yesterday ended up having the highest one-day reported death total for COVID-19

 

[MRG]

Did you ever have a blazing fire(2019 market) that settled down to a thick hot bed of coals(last 3 weeks)and throw some kindling on it(Fed actions)? It will flare up for a while while the new fuel is quickly consumed.

Markets are more complicated than a fire. [emoji849]

 

[Freedom56]

How the heck can the market possibly be going up as fast as it is, when it seems that exactly the opposite should be happening....?

I just don't get it.

There's GOT to be something that I just don't understand when it comes to the markets.

- Patrick

Markets discount the future. The near term bad news has been discounted. Markets never fall in a straight line. There is always incentive for short sellers to cover and take profits. The current stimulus will carry the economy through the end of May. What the market needs to determine is what the economy will look like on the other side. This is going to be a long recovery until a vaccine or viable treatment is available. Many businesses that were in serious trouble before this event will shutter permanently. Consider that clothing retailers are holding seasonal inventory that they can't sell when they re-open. Also consider that a small number of stocks carry the weight of the broader market and that situation is getting worse.

Those that are in good financial shape can ride this out without any damage but the vast majority are financial wrecking balls living pay check to pay check. They will be the first ones to blow through their stimulus checks. Temperature screening before entering a business or workplace will become the norm moving forward. Those that continue to defy common sense and congregate in large numbers or are not abiding by quarantine orders are just going to prolong the problem.

 

[freedomatlast]

I think there will be a lot of pent up demand for all types of goods and services after the shelter in place orders are lifted and when we're well past the peak of the number of infections. Social distancing will continue, restaurant seating will be less dense, but people will be back to work and life will go on. More online shopping will continue and businesses will adapt. I think the market reflects 'this too will pass', just like every other crisis.

 

[Closet_Gamer]

I think most of the bad news regarding the virus has been consumed by people who really pay attention to this stuff. We're going to see shocking headlines for the next 12 weeks, but they're pretty easy to predict at this point, so should really be priced in.

The daily news out of Europe is increasingly better if you get past the horrid news stories about fatality rates, hospital equipment, etc. and actually look at the data.

The Italian stock market index has been powering higher for the last two weeks.

My guess -- note the word guess -- is that while we'll see some headline driven volatility it will be pretty minor relative to the hurricane of the last 3 weeks.

The market is mainly going to be digesting actual new information when it comes out, rather than reacting to the rehashing of the now well known tragedies being played out on CNN, etc.

I think the four big movers are...

1) Does Europe actually turn the corner like it appears to be? (Italy in particular is putting up numbers that make me hold my breath and hope.)

2) Provided #1 comes true, what happens when Europe tries to restart the economy?

3) Does the US seem to be getting on the Europe curve, or has the US approach to the response charted a curve that is markedly different (and therefore both #1 and #2 are less predictive).

4) Some crazy black swan a la AIG or GE being unable to roll over its commercial paper in 2008. If a very big company face plants publicly, that could really scare the squirrels again. It seems like the governments have tourniquets on all the badly wounded big companies but something ugly could still surface.

BTW...none of the above makes me think I'm smart enough to trade this market. Just my observations.

 

[P.S.]

... we're well past the peak of the number of infections...

?!?!?
No, just no.
I am not a statistician, epidemiologist, or health policy expert, but will say with absolute certainly: we are not well past the peak. We are not even at the peak. ?!? And if we do not do an absolute lock-down like China, and we are not, then the American curve will be drawwwwn out.

 

[audreyh1]

Short squeezes can cause dramatic melt ups, but they are generally short-lived.

 

[audreyh1]

?!?!?
No, just no.
I am not a statistician, epidemiologist, or health policy expert, but will say with absolute certainly: we are not well past the peak. We are not even at the peak. ?!? And if we do not do an absolute lock-down like China, and we are not, then the American curve will be drawwwwn out.

I think they meant WHEN we are well past the peak - it’s clear from their statement that they are talking about after several things happen.

 

[P.S.]

thanks, I misread.

 

[freedomatlast]

Up I think they meant WHEN we are well past the peak - it’s clear from their statement that they are talking about after several things happen.

Correct. I amended my previous post for the sake of clarity. In my area, the peak is projected to be around 4/16 and it will be a while after that before we can begin to think about a return to some form of normalcy.

 

[jazz4cash]

We’d all like to believe market action is rational. The market went up/down/ sideways because of x, y, or Z. Reality is that it is basically random with an upward tilt. I agree fully with Old Shooter on this. This recent market volatility is far more random than normal. Investors are driving in the fog with no idea when it will lift or get worse. They’re guessing on which stocks will be in favor when the fog lifts. It will lift but I’m proceeding at reduced speed until visibility improves

 

[kjpliny]

Simple answer: PPT & Fed

In addition to the known manipulations, there are probably a lot of things happening behind the curtain that is not disclosed. This would explain a lot.

 

[Lakewood90712]

How the heck can the market possibly be going up as fast as it is, when it seems that exactly the opposite should be happening....?

I just don't get it.

There's GOT to be something that I just don't understand when it comes to the markets.

- Patrick

Hedge funds re-buying with extremely cheap credit. Same buyers as were sellers in the rapid drop.

Wall street was selling last 3 weeks , main street, not so much. I would suspect most on this forum did not sell much.

My Portfolio is less than 10 % equity, and I didn't seriously consider selling, even at the low.

 

[NW-Bound]

When I saw "Melt Up" on the thread title, I thought someone was reviving an old thread about the market action up to the top on Feb 19.

Upon reading it, I saw that it was about the recent market bouncing up from the bottom. Well, it may not last. It's nice to see, but I will not bet on the market staying there.

 

[COcheesehead]

Has anyone considered that ETFs had to rebalance?

 

[brewer12345]

Has anyone considered that ETFs had to rebalance?

Pension funds, balanced funds, etc. also had to rebalance and they frequently do so before the end of the quarter. That is now in the past so I suspect we will resume downward movement. We are a long way away from A) really knowing when we will come out of the pandemic and economic freefall and B) starting to get back to normal. Buckle up, buckaroos.

 

[Running_Man]

The market is having a "melt-up?" We just finished the WORST first quarter in the history of the US stock market and the feeling is we are having a melt-up?

Despite assertions of random transactions for a ever-increasing long term Nobel prize winning portfolio, everything from the start of this drop has been historic. In addition to now being the very worst 1st quarter in the history of the stock market it was also the fastest decline of 20% from a stock market peak in history. The level of unemployment in the lastest week was 5 times greater than the second largest increase in unemployment in history. Total unemployment is expected to break the record unemployment of 1933 by 50%. Corporate debt to GDP at the start of this was the highest in the history of the United States. This market is showing moves in a historic, not random, fashion are occurring.

Historic moves cause damage of an historic nature that is not realized until the future exposes what the move was presaging. Jeffries is stating that the FED is going to have to purchase 6 trillion in US Bonds, a truly historic figure, that is not just a random purpose. The Federal Reserve is telling anyone who will listen that they are truly petrified of the potential for economic harm. The government is giving trillions to business, the idea that all the information is well understood and this is just random irrational behavior is an absurdity.

Money was designed as a store of value to facilitate trade of goods. Look around yourself and judge if you think value today is higher than the value was in 2017. By the end of this year GDP will be under what 2017 GDP was and expected growth in GDP at that point was 3.5 percent per year.

Again I urge people to read the only time in history that came close to this current economic environment and read not some Nobel prize winning book but The Great Depression a Diary by Benjamin Roth. Back then it became impossible to collect rental income on properties. How long can the present high rents be sustained across the country with 36% unemployment? What will be the effect on GDP of the lost value in the coming months. In the book Benjamin Roth writes in 1931 than many great bargains abound, only to write in a note in May of 1932 that advice was premature and prices had fallen to 1/3 of the price in 1931. In 1929 the S&P500 fell 12 percent in 1930 it fell 28 percent. By 1931 the S&P500 had fallen to 14 from its high in 1929 of 32. By May of 1932 it would be at 4. A four percent withdrawal from the level of 1929 would have been 30 percent of the value of the portfolio in 1932. Nearly everyone went bust, there was no shortage of smart people back then, it was just a historic move that the populace had not comparison to then.... and so far we are incurring economic damages at 5 times the rate of the stock market crash of 1929.

 

[BeachOrCity]

+1 and thank you.

Other than programmatic or rebalance trading I don’t understand the meltup.

My hope is that my investing friends at Er.org are using or used the melt up to give thought as to whether “stay the course” really applies right now.

The market is having a "melt-up?" We just finished the WORST first quarter in the history of the US stock market and the feeling is we are having a melt-up?

Despite assertions of random transactions for a ever-increasing long term Nobel prize winning portfolio, everything from the start of this drop has been historic. In addition to now being the very worst 1st quarter in the history of the stock market it was also the fastest decline of 20% from a stock market peak in history. The level of unemployment in the lastest week was 5 times greater than the second largest increase in unemployment in history. Total unemployment is expected to break the record unemployment of 1933 by 50%. Corporate debt to GDP at the start of this was the highest in the history of the United States. This market is showing moves in a historic, not random, fashion are occurring.

Historic moves cause damage of an historic nature that is not realized until the future exposes what the move was presaging. Jeffries is stating that the FED is going to have to purchase 6 trillion in US Bonds, a truly historic figure, that is not just a random purpose. The Federal Reserve is telling anyone who will listen that they are truly petrified of the potential for economic harm. The government is giving trillions to business, the idea that all the information is well understood and this is just random irrational behavior is an absurdity.

Money was designed as a store of value to facilitate trade of goods. Look around yourself and judge if you think value today is higher than the value was in 2017. By the end of this year GDP will be under what 2017 GDP was and expected growth in GDP at that point was 3.5 percent per year.

Again I urge people to read the only time in history that came close to this current economic environment and read not some Nobel prize winning book but The Great Depression a Diary by Benjamin Roth. Back then it became impossible to collect rental income on properties. How long can the present high rents be sustained across the country with 36% unemployment? What will be the effect on GDP of the lost value in the coming months. In the book Benjamin Roth writes in 1931 than many great bargains abound, only to write in a note in May of 1932 that advice was premature and prices had fallen to 1/3 of the price in 1931. In 1929 the S&P500 fell 12 percent in 1930 it fell 28 percent. By 1931 the S&P500 had fallen to 14 from its high in 1929 of 32. By May of 1932 it would be at 4. A four percent withdrawal from the level of 1929 would have been 30 percent of the value of the portfolio in 1932. Nearly everyone went bust, there was no shortage of smart people back then, it was just a historic move that the populace had not comparison to then.... and so far we are incurring economic damages at 5 times the rate of the stock market crash of 1929.