Why in the recession 2020 the stock market is rising???

      Why in the recession 2020 the stock market is rising.

 

          What many people are finding strange is that in the middle of so much chaos that’s happening in the U.S or around the world you can see the stock market is rising fast.

 

          Millions of people have lost their jobs and dozens of millions of people have applied for unemployment benefits while there is a pandemic. It’s not clear where the economy is heading to and what’s going to happen in the future.

 

          And if you count the current demonstrations and the problems that are happening in the street. It seems like the economy should be in horrible shape, and it doesn’t make sense that the stock market is rising since the economy is sinking.

 

          In fact, some experts are warning that we might slide into a depression that’s going to be long and painful since we are already in a recession. Why would the stock market rise when the economy is in recession and has a possibility of sliding into a depression.

 

          Look at the SEP 500 just in march it was down by over 30% and right now it has almost recovered, and it seems like it will grow much further.

Almost every company that suffered in this pandemic has completely recovered and is hitting a new record.

 

          But let me assure you that what’s happening now is nothing unusual. It is entirely normal, and we will explore what exactly is happening in this blog post.

 

          The stock market isn’t the economy. It is all about what investors think is going to happen in the future. It is not a good indicator of the current situation in the economy.

 

          Let me just give you a very simple example, you invest in the stock market in hopes that you’re going to make more money in the future. So when we are talking about this pandemic. Sooner or later we all know that it’s going to end since we know how to solve it.

 

          It is not a long-term thing. The vaccine is going to be created and life will get back to normal. Even if the vaccine won't be created in the foreseeable future, most companies will still in some form get back to business, so it will be business as usual.

 

          When most investors believe that the market is undervalued, they are going to invest since in that case, the market will rise. And when there is so much demand in the market. It starts rising.

 

          So if you want to predict where the stock market is headed to, you have to understand what is going to happen in the future or at least what it seems is going to happen. If investors would predict a depression if everybody is going to think that we are going to slide into a long-term economic decline.

 

In that case, a lot of investors would start pulling out their investment and the market will crash as it happened just a few months ago. But right now it seems like investors have a lot of faith in the market. But that’s not all.

 

The problem with the stock market is that few companies make up a large portion of the market like Apple, Microsoft, Alphabet, and a few others with over or close to $1 trillion valuations.

 

They have massive influence over the direction of the market. They are stable, strong and regardless of what happens, they’re going to rise. Investors are confident to put their money into these companies. Major airlines that are traded in the stock market are valued at around 50 billion dollars.

 

That’s not even 1/10 of Microsoft, or apple or amazon. So, they not going to have a massive influence over the market even if they go bankrupt and the same applies to many other industries. This means that a lot of businesses go broke and thousands can lose their jobs.

But the stock market won’t be affected. The stock market isn’t the economy. Almost 50% of all Americans work in small businesses, and you know what, not a single small business, is listed on the stock market because they’re not big enough to be traded there.

 

The pandemic pushed many small businesses to close down, such as restaurants, malls, barbershops, cinemas, and so on. Which means, the fact that Millions of Americans lost their job has nothing to do with the stock market.

 

Of course, all of these giant corporations also lost a lot of their operations and had to fire a lot of people. But many of these companies are so big that they are diversifying their business models in different ways. Especially tech companies and are finding new ways.

 

To build different streams of income, so they haven’t suffered as much as small businesses that had to shut down completely.

 

The current crisis is different from all the crises we had before, you can’t compare it to the 2008 crash or 2001.com bubble or even the great depression.

 

Of course, an economic crisis is inevitable, and it will happen sooner or later, but the job of the federal reserve is to keep the economy growing even slowly and prevent it. From sliding into a recession.

 

The FED has multiple tools to do that, such as lowering interest rates or printing money and distributing it to companies, people, or even small businesses to keep them alive. We not going to go into the details of how central banks work because we have done that in a blog post in the second blogger.

 

But in short, the federal reserve has lowered interest rates to 0%, which means businesses can borrow money for free. Which means businesses can borrow money for free. The FED is also buying corporate debt which means corporations can issue debt and sell them to the federal reserve.

 

Because they will buy it for sure just to help these companies is to survive this pandemic. On the other side, the government is borrowing $4.5 trillion and spend it to keep the economy running, by providing everyone with a $1200 stimulus check.

 

People are going to take this money and spend it on goods and services that they need to keep on with their lives, which means this money is going to go into the pockets of these companies and eventually help the economy to keep growing.

 

The market is probably overvalued since the government and the FED have inflated it. By pouring trillions of dollars. What’s going to happen probably is that sooner or later it will burst. And a lot of companies would go bankrupt in the coming future, primarily the airlines.

 

Secondly, oil and gas companies because the pandemic already pushed oil prices to fall significantly. We even saw negative oil prices recently. These two industries are going to suffer tremendously and might take down many other businesses with them.