Sep 7, 2020

We're in a recession yet stock market is at all-time high. What?!

I've been focused on my flashlight hobby as an escape from the real world, but it's time to talk about the real world. 

Let's face it, we're in a recession. Many companies are struggling to survive; many people are out of jobs, and things are getting worse by the day. Yet, why is the stock market at all-time high? It doesn't make sense. What the heck is going on?!

I've been perplexed by this for a while and only recently did I find the answer: smart money is moving to safe havens.

Wall Street doesn't necessarily represent Main 
Street. In fact, the stock maket hasn't represented the economy for a while. SP500's performance is heavily weighted towards a few huge companies like Apple and Amazon. The people investing in them (thus driving up their prices) are mostly the top 5 investment houses, not retail investors like you or I. Surely, those people know better than to invest in highly overvalued companies right? Yes, as a matter of fact, they do! 
Here's why: the US economy is in really bad shape. It's full of companies on the verge of bankruptcy or are already in the process of bankruptcy. Things are continuing to get worse as time goes by, despite the fact that this Federal Reserve has been doing everything it can to artificially keep things afloat. However, investment money still needs to be invested (otherwise investment banks would be out of a job). It's better to put that money into large companies that have tons of money in the bank than any other option (including holding onto it). Huge companies like Apple and Amazon have so much cash that they can afford to not make money for a long time, thus making them safe bets to ride out the storms. More money invested in these companies = higher SP500 while the the rest of the economy struggles.

Oh and there's the hope that the economy will rapidly recover once covid-19 vaccine is here. That's a possibility, but one that will probably be too late for most companies out there. 


Stocks are up because smart money is moving to safe havens. Apart from the biggest companies, most companies (and their workers) are struggling to survive. We're in for a world of hurt, but the rich are doing great. 
ZEROSVN Tech Enthusiast

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