Stock Market as Forward Looking as a Caboose

The Great Recession

“Remember that the market is a forward-looking indicator. Ideally, it is pricing in the gains of the next six to 18 months.”

(Seeking Alpha)

Famous last words again and again. That sunny advice about today’s overpriced market was repeated again about a week ago. It is the same excuse that was routinely deployed at the beginning of this rally back in April and May and especially in June and July as the market recovered most of its losses in spite of all the gloom. “These prices are justified,” they said, “because the all-wise market looks forward six months or more, and by the start of 2020, the economy will have almost completely recovered.”

Everyone was claiming summer’s steep climb in stock values were justified because of the V-shaped recovery that was going to take place. Here we are a year later, and I’ll say what I said then:

“Poppycock,” said I said in essence. “The market is not forward looking at all; it is forward fantasizing.” I claimed the market was pricing in ridiculous dreams that were floated on hope and denial. It has been going up ever since. The frustrating part is that the market’s cheerleaders keep using the same justification, and no one calls them on it.

We are now at that point in time that was used last summer to justify the stock market pricing in a full recovery by early 2021, yet we still have unemployment and permanent Main Street business closures that are worse than the Great Recession. Those closures assure most of the remaining jobs are never coming back. Returning to full employment is a totally different challenge when you are talking permanently shuttered businesses versus recovering from temporary layoffs in businesses that kept running but at a reduced level, which can rehire when the economy comes back.

Read the rest here: https://thegreatrecession.info/blog/stock-market-as-forward-looking-as-a-caboose/

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