patrick.net

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When you examine the statistics like from the Federal Reserve and from the FiveThirtyEight article, it is not as bad as you would expect.

The employment - population ratio is only 13% down from its peak in 2019. Industrial production is only down 17%.

That is why the stock market has not completely tanked.

The S&P 500 bottomed at 35% below its 52 week high.

But consider the S&P 500 is now down only about 8% because of the mega growth companies like Amazon, Facebook, Apple, Disney, etc. as well as Walmart, Tesla, etc.

Airline ETF (symbol "JETS") is down 50%. It bottomed 65% below its 52 week high. The same goes for other beaten up stocks like cruise lines, hotels and resorts, and restaurants. They all have price discovery or priced-in the recovery.

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Carnival Cruise Line is currently down 77%. It bottomed when it was down 90% back in April 2020.

These stocks like Carnival have price discovery in that they already account for being beaten down and for slow growth in the next 6 to 12 months.

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Still, I'm surprised the market isn't down more.

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Patrick says

Still, I'm surprised the market isn't down more.

A lot of the stocks that you would expect to be beaten down have been beaten down like MGM, Carnival Cruise Line, etc.

When you say "market" then I suspect that includes primarily the S&P 500. For that perspective, examine what is propping up the S&P 500, yes it is Amazon, Facebook and a few others. The grey curve is the S&P 500, the blue curve is the other 495 companies that make up the S&P 500. I believe the grey curve should now show it is - 8% as of tonight, not -3%. I believe the S&P 500 is moderately overvalued and should be trading between -10% to -20%.



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Patrick says

Still, I'm surprised the market isn't down more.

Same here but I have seen certain numbers that don't look so bad here and there. Even though I'm a bear at the moment. I'm still pissed I missed a great opportunity due to the fed but it would be great if 'we still got it' and also great for the election.

ad says

But consider the S&P 500 is now down only about 8% because of the mega growth companies like Amazon, Facebook, Apple, Disney, etc. as well as Walmart, Tesla, etc.

This is what scares me.

On a 'bright'? note I finally got out of my Hong Kong stock I bought into at the peak right before the trade war: TCEHY

Yes, that was me buying at 59.5 in 2018. I only put in the tip though. Just the tip. Of a brokerage account I'd been ignoring (still am) anyway.

It's been interesting owning it and watching what it's been doing over this time. It's a Hong Kong stock and has been making a strong move up.

It’s not going down until interest rates are rising.

The economy sucked when Obama was president and stocks went up.

The guys who have money all around the world are investing money.

If bonds don’t pay interest, they buy stocks.

The thing to remember is the stock market is an auction.

Ever see the money spent for pieces at a Sothebys auction? The prices seem out of whack with the economy also.

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clambo says

The thing to remember is the stock market is an auction.

True, I like your comparison to auction houses like Sothebys such as for fine art. The same goes for collectibles like baseball cards, etc. There is a lot of speculation and a lot of times it is bought based on emotion especially by rich fine art collectors.

But there are some guiding fundamentals as far as measuring the value of a stock or real estate.

I like examining price to income ratio as one indicator with very low mortgage rates (3% to 5%) permitting up to a ratio of 5.
Ref: https://www.longtermtrends.net/home-price-median-annual-income-ratio/

I like P/E to Growth Ratio, as well as the Shiller PE ratio as another way to measure the value of the stock market and stocks.
Ref: https://www.multpl.com/s-p-500-pe-ratio

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P/E ratios today can be considered high in comparison to other times, but interest rates were higher at other times.

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clambo says

P/E ratios today can be considered high in comparison to other times, but interest rates were higher at other times.

Good point. As the P/E ratio (trailing twelve months) is around 22. Its low considering it was around 46 in summer of 2000, and also interest rates were a lot higher than also.

So a higher P/E in a lower interest rate environment is plausible. Just like a high ratio of home price to income is plausible (i.e., 4 to 5) during lower mortgage rate periods.

As the rise of growth stocks (i.e., Microsoft, etc.) took place in the 1980's, interest rates have dropped steadily since then.

Growth companies need to borrow money at low interest rates in order to sustain their rapid rate of growth.

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