Here are 5 explanations for the disconnect between the stock market and the economy:
The market hates uncertainty more than bad news
Second, the market hates uncertainty more than bad news. On Friday, we learned over 20 million jobs were lost by U.S. workers in April. This was the worst month for job losses on record. S&P 500 futures gained and closed the day up 1.7%. Why? The market was expecting job losses around 22 million.Third, bond yields going into the pandemic were already low. We haven’t gone into
with bond yields this low. In mid-February, the 10-year treasury yield was 1.6%. In Oct 2007, before the Great Financial Crisis, the 10-year treasury yield was 4.7%., the 10-year treasury yield was only .70%. With the dividend yield on the S&P 500 at 2%, it’s hard for long-term investors to justify reallocating stocks to bonds.Forth, even if it takes a year to get a vaccine out, that’s not terribly long for the stock market.
From a historical standpoint, P/E ratios are still high. The forward P/E ratio is 20.5x. Over the last 25 years, the average forward P/E ratio was over 16x earnings. In either case, the next 12 months of earnings is only worth a fraction of the value of the stock (1/20
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