Stock market isn’t economy or market is always right
Updated: Jun 11, 2020
The stock market is acting “completely normally” lately. Market cap to GDP (US) or so-called Buffett indicator is at almost 150% and acting US president trumpeting that jobs are coming back FAST.
However, let’s have a look at unemployment figures from two different angles.
The first one: unemployment rate vs Dow Jones index:
And unemployment figures in a longer perspective. Yes, job market is recovering but compare to severe drop just couple months earlier it doesn’t look bright and shiny at all.
Meanwhile consumer sentiment continues to fall:
What future forecasts for corporate earnings can tell us? Or to be more precise – what am I after? I’m looking for forward price-to-earnings (forward P/E) ratio.
According to Investopedia, the forward price-to-earnings (forward P/E) is a version of the ratio of price-to-earnings (P/E) that uses forecasted earnings for the P/E calculation. While the earnings used in this formula are just an estimate and are not as reliable as current or historical earnings data, there is still benefit in estimated P/E analysis.
A high P/E could mean that a stock's price is high relative to earnings and possibly overvalued. Conversely, a low P/E might indicate that the current stock price is low relative to earnings.
Businesses currently demanding unprecedented amounts of state aid. Is it good or bad? It depends on which side of the fence you are, but I rather well remember one quote I once came across on Twitter: “Capitalism without bankruptcies is like Christianity without hell”.
Everything that is happening now does not seem ordinary and normal in any way. Not to mention the various BLM protests that are now taking place in America.
The global economic outlook does not look bright. The International Monetary Fund forecasts a greater economic downturn than in the 2008 crisis.
And COVID-19 has not gone anywhere as well. There are some countries that are doing rather well, but they cannot thrive either while other regions are continue to struggle since we all are part of global economy. The question now remains how the virus will spread in America after all the recent protests.
The question now remains how the virus will spread in America after all the recent protests.
And amid all of this, the market is on its way to another new peak…
Does it look like “normal, correct, mundane"? I have a feeling that we are in a big stock market bubble.
The stock market seems to be "disconnected" from "real life" - I don't even know how to comment on this situation in any other way. And I always thought and still believe that the market is always right. So, to process all this and get the true sense of the situation is rather difficult for me and I want to take a brief break from the graphs to see how this situation unfolds.