BBCWatcher
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Is there? On a global index basis, stocks are currently well off their peak, and so is global GDP.There is a disconnect between the economy and the stock market.
More precisely, on a global index basis, stocks are above their recent low. But doesn’t that make sense? Stock valuations are supposed to reflect, on average, consensus outlooks on the net present values of real businesses. The expected trajectory of real businesses, broadly speaking, is that the future will be improving. That seems logical, doesn’t it?The economy is in bad shape while the stock market has been on a rally since March.
Stocks tumbled a pretty good amount, and they should have tumbled given the uncertainties and impacts associated with COVID-19. But now the world is at least understanding this virus better and adjusting to it — some better than others, for sure — and so the future is brighter. Brighter doesn’t exactly mean bright yet, but brighter. If you want to use a war analogy, it’s kind of like mid to late 1943 World War II from the Allies’ perspective. There was an awful lot of fighting and dying to come, but it was pretty clear by then that victory would come eventually. Italy officially switched from the Axis to the Allies on September 3, 1943, for example — the day when the Allies landed on the Italian peninsula. (The surrender was publicly announced 5 days later. It took nearly two more years before World War II ended, and Singapore specifically had to endure the full term of occupation.)
Then there are the businesses that did rather well in 1943 and beyond, and there are analogies today. COVID-19 has been wonderful, overall, for Amazon for example. I keep reminding people that we’re dealing with real businesses here, and to look at the biggest stocks as one sanity check for your thinking. Does anyone want to disagree that COVID-19 has been/is fabulous for Amazon? How about (random large company example) Visa? Or a “boring” company like Kroger, a publicly traded supermarket chain? There are many, many examples of real businesses that have triumphed in these times, in some cases also with COVID-19 wiping out weaker competitors with stocks that already weren’t worth much. (Certainly true of Amazon.)
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