The stock market is basically at late 2019 levels when everything was totally fine. The disconnect between the market and the economy is quite dystopian.
Many of the securities that are at their December 2019 valuations are in a much worse state today than they were then. Stores are closed, manufacturing faces significant delays. Employees are let go or furloughed.
This means the "item" that you're paying for today with the same USD that you may have spent in December is of considerably lower "quality" compared to then.
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That said, it's an interesting situation as drastic financial crisis typically come with some short term deflation, which we're likely seeing the beginnings of now. Many stores are running discount sales to boost purchasing, effectively lowering consumer goods prices (as a whole). This is a prime example, if it continues, of currency deflation.
However, once all is said and done, depending on how the market moves from here, we may very well see the asset inflation turn into currency inflation and bloom for a bit before more drastic financial policies are needed to curve it.
But to your point, yes, the combination of currency inflation (as seen through the securities market due to liquidity injection, and perhaps not yet seen elsewhere) and changes in PE ratios is roughly what I'm referring to. As earnings drop, if prices remain as high as they are due to this inflation, the ratios should see a spike, not unlike the one seen in the chart linked for 2009.
Six milliseconds from now, when the automated trading systems think they can sell and make a profit.
Seriously, over 50% of trading volume is done by automated trading systems these days.
edit: looks like I underestimated. This article from June 2019 suggests it may be as much as 80%: https://www.cnbc.com/2019/06/28/80percent-of-the-stock-marke...
I agree the market shouldn’t be where it is, but instead of yelling about computer programs on an internet discussion forum, I bought puts on IWM.
It's not like a 3% drop in the economy should cause stocks to tumble in the first place. Drop but not tumble.
That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically. Everyone knows companies are shut down now and are bleeding cash, that was why the market quickly crashed immediately after the shutdown. Now that we’re into the shutdown and it looks like maybe a re-open by summer, how do the businesses look then? Especially when they’ve had bailout money to help pay expenses during the shutdown.
I have a large short position on IWM right now and have since last week. If the next leg down doesn’t start from Q2 earnings, Q3 earnings will.
That's a quaint view, but the logistics is completely mathematical. The prices of securities is absolutely and completely based on the bid and offers. It is a completely mathematical outcome of transactions. Of course, prices feed into the psychology of investors, as well as their estimates of future performance. But a huge amount of cash in the market is there to make short-term profits, not long term profits. Automated systems trade huge amounts of money based off technical analysis and price prediction on multiple timescales. There are computer systems with stupid amounts of computational power who only think about how to make two cents by being ahead of the market by 1 millisecond, 1 second, one day, one week. And they make billions.
> That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically.
I think we're into a rathole here, but this statement basically contradicts your earlier point. If prices are based off the future 6-12 months from now, then crashes wouldn't happen, or be so severe. This is obviously false. Bubbles pop violently.
I don’t know about you, but I like penny wide spreads on liquid stocks. The minimum used to be 12.5 cents (1/8th tick).
Would you please explain why HFT and algorithmic trading are bad? Are you an ex floor trader or something?
By analogy, the expectation of location for a random walk which has a floor at 0 is strictly positive and increases monotonically.