Can someone explain to me why the financial markets appear to have recovered? We supposedly have tens of millions of people out of work, and I’ve watched as a number of local small businesses have closed their doors for good because of the COVID lockdowns. We’ve also printed trillions of dollars. I understand that the lockdowns have benefitted big business to some extent, but surely people are tightening their belts...or are they? I thought I understood financial markets reasonably well. I mostly got out of the market about two months ago, but now that looks a bit foolish. I’m now beginning to think that I don’t understand financial markets at all and never really did. Can there really be no economic consequences for the major disruptions our government has caused to the economy? What am I missing?
To some extent, it's a sign of just how detached big multinational corporations have become from everyday America. The excess cash they'd been doling out on share buybacks to artifically inflate earnings per share is now the cushion they're using to insulate themselves from the economic fallout.
Other sectors have actually seen an economic boost. Think Amazon, Netflix, and any tech company that helps facilitate working from home. Pharma companies are doing OK, too, given investor anticipation of a vaccine.
But other sectors have been taking it on the chin -- particularly department store chains, airlines, and oil producers (because of less travel).
Seems to me that the overall enthusiasm in the markets is being overdone, given how much debt governments are piling up and how many out-of-work people aren't going to have as much discretionary income. I don't think the optimism can be sustained.
I’m hoping the markets hold through the second wave. They are still down, but have been recovering surprisingly well.
When you think about it, for large sections of the economy, it’s business as usual. Many people have worked straight through. While specific industries like airlines, tourism and live events have suffered, companies like Amazon can thrive under these conditions. And after the initial crash in March, many high value stocks were available at discount prices. Investors took advantage. Some made money. It all helped.
I think the real reckoning will come for many countries when they have to deal with the massive deficits rung up over the past six months, and which they may continue to ring up for the foreseeable future.
It will take a few years for this to shake out, and maybe a decade to regain lost ground.