How low can we go?

[bullsdoc]

The market is overpriced. People are still doing well on their stimulus checks, unemployment benefits, and liquidity remains high. Once unemployment really doesn't pick up fast and hits up against congress' distaste for additional cash injections, people will sell. Likely out of necessity, unfortunately. We're not close to this thing being over.

To preface, as always, this DOES NOT mean you should change your investing plan

[JBME]

The market already priced in worse news. And expects a faster rebound than the great recession.

With each passing day, as states start to slowly open and yet most people STILL won't go do business, a V-shaped recovery clearly won't happen. Remember a lot of people were choosing to shelter before stay-at-home orders were actually put in place. I don't know why the market thinks a v-shaped recovery is still going to happen. It's going to be a W or a U. I'm looking/hoping for a W because I'm not happy buying stocks that are only 15-20% off....I want to buy more when they are 40% off again. It's just so obvious to me that our way of life has changed, at least for the rest of 2020

[Panscan]

With each passing day, as states start to slowly open and yet most people STILL won't go do business, a V-shaped recovery clearly won't happen. Remember a lot of people were choosing to shelter before stay-at-home orders were actually put in place. I don't know why the market thinks a v-shaped recovery is still going to happen. It's going to be a W or a U. I'm looking/hoping for a W because I'm not happy buying stocks that are only 15-20% off....I want to buy more when they are 40% off again. It's just so obvious to me that our way of life has changed, at least for the rest of 2020

What you're saying is standard market timing.

I have no idea how the recovery will be. 15-20 percent discount? Sign me up.

[jacoavlu]

With each passing day, as states start to slowly open and yet most people STILL won't go do business, a V-shaped recovery clearly won't happen. Remember a lot of people were choosing to shelter before stay-at-home orders were actually put in place...It's just so obvious to me that our way of life has changed, at least for the rest of 2020

Curious what part of country do you live in?

in some parts things look pretty close to business as usual. Not at all like you describe.

[Zaphod]

There is a lot of liquidity floating around now, and it has to go somewhere, or at least this is what people say. Im ofc unsure how much is that, mean reversion and seriously, just plain confusion and path of least resistance.

Market will eventually find an equilibrium and some confusion is perfectly reasonable.

[Tim]

From a data perspective, the political lines are drawn by states. That leads to serious false conclusions. Why use states? Would County or zip codes lead to better health and economic decisions?

https://www.worldometers.info/coronavirus/country/us/

If 3 counties in Texas and California account for 1/2 of the cases and 1/2 of those are highly concentrated in specific zip codes, there seems to be a more effective way of containment than shutting down the whole state economy. The link above has some additional breakouts for things like VA facilities and county data as well.
Data eventually will be available by zip code. Those areas will be slow coming back. For some, a political motivation is hindering economic progress. I do believe zip code data is available to national, state and local healthcare and political authorities. Because it is incomplete, the public is not “trusted” with the information. That is not a criticism, false conclusions of safety could be drawn. The severe outbreaks seem to be very concentrated. Data is still lacking but greatly improving. Resources were concentrated in avoiding overwhelming the hospitals. Better data could ramp up the economy greatly. I could see hair salons closed in one zip code and open in the vast majority of others.

[Dont_know_mind]

There is a lot of liquidity floating around now, and it has to go somewhere, or at least this is what people say. Im ofc unsure how much is that, mean reversion and seriously, just plain confusion and path of least resistance.

Market will eventually find an equilibrium and some confusion is perfectly reasonable.

Many conflicting factors:
- Valuations - not good. The Nasdaq market cap is now significantly higher than the USD capitalisation of all of the rest of the world (ROW ex-US).
- Stimulus (monetary and fiscal) is large, unprecedented
- Interest rates - historically low.

I tend to think the stimulus will result in more firms delaying restructuring - Zombie entities. So probably not good long term.
In the short term it's very Pavlovian. Every time I remember a major central bank has said they were going all in and would "do whatever it takes", the market has turned.
I guess from a herd perspective, it's a call to everyone to pile on. I tend to think these central bank driven moves can overshoot fundamentals for a while. It might not happen here but it's what I consider to be the base case.

I remember when Mario Draghi went all in on the Euro and QE in 2012, the Euro dropped from 1.25 to 1 over the next 6 months. It was really overdone. But then when he announced the last bit of QE, the euro went the other way, back to 1.15.

With this episode, Powell has gone all in from the start. There hasn't been any measured steps as is the usual procedure for the Fed.
This is not like any of the previous bear markets I have seen.
I have no idea what happens next.

2 options I see as most likely:
- Buffett turns out to correct in the short term and this runs the course of 2008-9 but with a much larger bear market rally here than is usual for bear market rallies
- Buffett turns out correct in the long term - but the market rallies to new highs and we have a 1997-99 type bubble. Which would be very weird, unless people just forget about the virus as you mention. One in between possibility is that beaten down sectors remain down and basically tech keeps rallying. I think this is quite possible and then 4000 or 4500 might get tagged. Buffett would really underperform with his cash (as he did in 1997-99) but maybe proven correct in the wash-up. I think he could pull it off if he lives long enough. I am really very fearful of the melt-up situation and I wouldn't be able to stay in cash if that happened. The FOMO would be just terrible.

I tend to think in the short term, there is a lot of retail cash on the sidelines (like mine until recently) and that may well propel things higher.
The main thing though is the Fed signaling, which is like a high pitched horn, which most participants, even the most hard of hearing ones like me remember. Like Mario Draghi's statement in 2012 : “Within our mandate, the ECB is ready to do whatever it takes... And believe me, it will be enough.”

I guess it depends on how you weight 2 opposing factors on risk asset prices : economic fundamentals vs CB liquidity.
To me it is like Jay Powell and the fed blew up the moon of Endor and the bears. The rebels will probably strike back, but it could be a while.
I am sort of thinking tech may have time to engorge further before falling under the weight of it's own overvaluation at some stage. And next time the Fed will possibly be more reticent to apply massive stimulus at an early stage.

Or maybe they keep applying it and it stops having the intended effect.
Just when Draghi announced QE3 (around 2 years after QE1), and after the markets lapped up ECB QE1 and 2, in the middle of his QE3 announcement, the euro did the reverse of expected and had this incredible move from 1 to 1.15, which was shocking at the time. Sort of like the death star when they push the button to blow up the rebel planet and it does the reverse.
I never underestimate the market's ability to shock and it's endlessly fascinating to watch.

[FIREshrink]

Almost unanimously we voted that we have not hit bottom yet. I know that this is a WAG but if you had to commit to a number what would you say?

Currently on 4/2/20 the S&P is at 2480 down from a high of almost 3400

Ultimately S&P dropped to 2200 so at least 70% of poll respondents were too pessimistic.

Furthermore, we've since had the greatest fifty day rally in stock market history. Hope you didn't miss that:

https://www.cnbc.com/2020/06/03/this-is-the-greatest-50-day-rally-in-the-history-of-the-sp-500.html

Market timing is really, really hard.

[StarTrekDoc]

Okay -- who's scratching their heads on why the market is doing what it's doing with evidence across that we've either plateaued or 2nd spike in progress?

In San Diego we've had a steady upwards trend ever since March because we stayed really low at 2% prevalence.

[Tim]

Market timing is easy (in hindsight).

• If history is any indication, there could be more gains ahead.

Is it too much too quick? There is no known treatment, no vaccine, and people in large cities are having huge gatherings with a complete disregard of social distancing. Our political leaders are now extolling the benefits of mass demonstrations.
Everything is perfect to reach new highs! Working just as planned. You can’t make this stuff up. Hindsight is perfect.

[mgchan]

Okay -- who's scratching their heads on why the market is doing what it's doing with evidence across that we've either plateaued or 2nd spike in progress?

In San Diego we've had a steady upwards trend ever since March because we stayed really low at 2% prevalence.

I don't think there was ever an opportunity beyond January to control the overall spread of the virus. Flattening the curve was just to prevent the initial spike. With the vast majority of people following basic guidelines of hygeine, we should hopefully see just a continued steady trend of cases as the virus continues to spread. Luckily, outside of a few major urban areas, our country is relatively disperse and less prone to Italy or South America like explosions in cases. Furthermore, case rate is so dependent on testing that unless we begin randomized testing it is generally irrelevant. The relevant numbers are deaths (which are also iffy but overall valid) and intubated patients.

But the market is forward looking anyway. Even if this lasts a full year, long term trends are unchanged. Most of the rebound gains have been in the modern "tech" companies. Those that were ready for remote work, and those that enable it. There's no decrease in digitization, e-commerce, cyber security, connected TV, automation, artificial intelligence and machine learning, big data, internet of things and connectedness/cloud (5G),gaming and e-sports, etc. Many of these trends have been accelerated by 2-3 years because of the pandemic.

There is some element of false support by monetary policy, stimulus money, and individual investors jumping in because they're home with nothing to do. But most investors are going to give companies a pass on earnings or revenue for these next few quarters, and reward those that are maintaining or even accelerating business in these days. The big "tech" companies will continue to thrive. The market simply doesn't include most of the small business that will be hardest hit by the pandemic and potential recession.

[Tim]

Fidelity has tapped into the retail investor sentiment desiring to pick winners.
“Thematic Investing” is the branding under which 6 Disruptive funds and 2 Megatrend funds allows “the experts” to focus on companies where you think the “future” growth prospects are superior.

The “teaser” is that expense ratios decrease the longer you hold them.

https://www.fidelity.com/mutual-funds/investing-ideas/thematic-investing

New growth, leading edge, narrowed focus to outperform. Just what is needed to pick the “winners”. Brokerage firms generate funds to satisfy retail investors that desire to outperform the market. Who knows whether it will work.

[StarTrekDoc]

I don't think there was ever an opportunity beyond January to control the overall spread of the virus. Flattening the curve was just to prevent the initial spike. With the vast majority of people following basic guidelines of hygeine, we should hopefully see just a continued steady trend of cases as the virus continues to spread. Luckily, outside of a few major urban areas, our country is relatively disperse and less prone to Italy or South America like explosions in cases. Furthermore, case rate is so dependent on testing that unless we begin randomized testing it is generally irrelevant. The relevant numbers are deaths (which are also iffy but overall valid) and intubated patients.

But the market is forward looking anyway. Even if this lasts a full year, long term trends are unchanged. Most of the rebound gains have been in the modern "tech" companies. Those that were ready for remote work, and those that enable it. There's no decrease in digitization, e-commerce, cyber security, connected TV, automation, artificial intelligence and machine learning, big data, internet of things and connectedness/cloud (5G),gaming and e-sports, etc. Many of these trends have been accelerated by 2-3 years because of the pandemic.

There is some element of false support by monetary policy, stimulus money, and individual investors jumping in because they're home with nothing to do. But most investors are going to give companies a pass on earnings or revenue for these next few quarters, and reward those that are maintaining or even accelerating business in these days. The big "tech" companies will continue to thrive. The market simply doesn't include most of the small business that will be hardest hit by the pandemic and potential recession.

Totally agree FAANG +Tesla is outsizing everything, but broader SP500 is recovering nicely too, and most folk understand that --but 20% of whole market is consumer spending on service/entertainment sector and that's in shambles still. Very perplexing. Welcomed, but perplexing. We're doing out part --- Model Y and renewing Disney Annual passes along with Aulani trip (if Hawaii allows us). :_)

[mgchan]

Totally agree FAANG +Tesla is outsizing everything, but broader SP500 is recovering nicely too, and most folk understand that --but 20% of whole market is consumer spending on service/entertainment sector and that's in shambles still. Very perplexing. Welcomed, but perplexing. We're doing out part --- Model Y and renewing Disney Annual passes along with Aulani trip (if Hawaii allows us). :_)

The S&P equal weighted index (RSP) still lags behind the market cap weighted index, indicating the smaller companies are still not recovering as well. Service is a big part of spending but relatively little part of earnings. It's simply too low of a profit margin when you have to pay workers roughly proportionally to how much revenue they bring in. Contrast to business services, especially software, where you do the R&D and initial sales but then any added sales are almost pure profit.

One could argue people are still finding entertainment at home (streaming) and again the profits from event tickets or even movies are relatively small since the overhead is so high.

[burritos]

Wonder if anyone sold on the way down or at the bottom?