Why is the stock market surging?

[tbsells]

I don't understand. What is so much better now than it was 4-6 weeks ago? Is it that magical thing called confidence? Or something more substantial? I saw this headline today "Weekly jobless claims highest in 26 years." That doesn't sound like good news that would lead to a rally.

I don't know much about this topic, but I'm trying to learn. I understand that the crush of daily bad news led to a large market correction. That makes sense. But why is it going up now? There has not been alot of good economic news. Is there a sense that the correction went overboard and now companies are undervalued? A belief that good times are just around the corner? Whats going on?

 

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[MJ DeMarco]

Markets tend to be forward thinking ... so investors might be thinking that all the doom-and-gloom has been priced in. The bad news is expected and was priced in weeks ago ... so when it comes to fruition, the market no longer reacts.

I'd be more concerned with the USD ... everytime the US markets profoundly rise, the USD loses 1%+ of its value.

While I'm not benefiting from the market rebound, I am profitting from the dollar devaluation. To me, it is concerning that anytime there is a big market rally, the dollar subsequently loses value ...

 

[ramy98]

The markets are manipulated.
I think this is just a short term bull move.

Fundamentally, I think the US is in a bad shape as mentioned above; just look at the trade deficet and take into consideration America's debt load. Its getting bigger and bigger...

 

[John]

To me, it is concerning that anytime there is a big market rally, the dollar subsequently loses value ...

I was pondering this a few weeks ago when the fed injected $1 trillion of liquidity overnight. The stock market went up by roughly 3%, but at the same time, the value of the dollar went down by roughly 3% (more dollar supply = less value per dollar).

To me, this doesn't mean that injecting more dollars into the system stimulated the stock market and created value. It means that the value of stocks remained roughly the same, but adjusted themselves to the new value of the dollar. If $100 used to buy 100 shares of a particular stock, now that $100 is worth 3% less and only buys 97 shares. The dollar-denominated price of each share has gone up by 3% because dollars are now worth less.

That's my take on it anyway.

 

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[MJ DeMarco]

I was pondering this a few weeks ago when the fed injected $1 trillion of liquidity overnight. The stock market went up by roughly 3%, but at the same time, the value of the dollar went down by roughly 3% (more dollar supply = less value per dollar).

To me, this doesn't mean that injecting more dollars into the system stimulated the stock market and created value. It means that the value of stocks remained roughly the same, but adjusted themselves to the new value of the dollar. If $100 used to buy 100 shares of a particular stock, now that $100 is worth 3% less and only buys 97 shares. The dollar-denominated price of each share has gone up by 3% because dollars are now worth less.

That's my take on it anyway.

BINGO!!! To the untrained eye, the market investor thinks "Gee, my stocks went up 3% today!!!" .... yet, in reality, they did nothing because the dollar was devalued by the same amount on the world stage ...

Speed+

 

[MattThomas]

Interesting. Out of curiosity, has the dollar devalued this time though?

To answer the original question, I think in part, it really is this "magic of confidence". The market is largely emotional, so some of the upward moves can be general optimism.

I have noticed a LOT more customers shopping in my local mall as of late...honestly, I think people eventually get tired of being scared.

 

[hakrjak]

I think it's a Bear market rally. I called it on my Facebook page the night before it kicked off, based solely on my gambler's gut feel. haha

I bailed out and went back into cash completely about a week ago for the same reason. I told you people that you can't predict what the market is going to do based on any kind of logic, especially right now. If you want to play the markets, you've just got to roll the dice based on what you think will happen next -- throw logic out the window! Otherwise sit in cash...

Re: The long term outlook -- It's not good when you've got Jimmy Carter's economic team running things in this country (No matter what party you belong to, I think you'll agree that those were some of the worst failed economic policies of the 20th century), and now we've got the Europeans in the G20 dictating how we're going to regulate capitalism in this country. I don't see a bright future at all. You're talking about non-existant growth, possible inflation (If the jobs thing ever turns around), High taxes, The Massive growth of Government, and a lot of misery for along time to come.

- Hakrjak

 

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[MJ DeMarco]

Interesting. Out of curiosity, has the dollar devalued this time though?

Yes... your big 3% Dow gain was immediately nullified by an equal and corresponding dollar devaluation against major currencies. The next time the market jumps big, look at the USD index, it will fall by the same amount. Your money is worth the same on the world stage.

 

[kidgas]

I think most importantly one needs to look at one's purchasing power. While near term fluctuations may seem to have the rise in the Dow inversely proportional to the fall in the dollar, I think one should be careful when making longer term assumptions. The near term fluctuations simply become a lot of noise compared to the overall economic stability of one's immediate locale.

They say that politics is local and real estate is local. I believe that to a certain extent economics is somewhat local as well. It boils down to cost of living and relative net worth. When the markets fell 50% last year, what happened to your costs and your purchasing power? In the end, that is the most important question.