Why stocks go up when things are bad – Yahoo Finance

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Tuesday, Nov. 1, 2022
Today's newsletter is by Sam Ro, the author of TKer.co. Follow him on Twitter at @SamRo. Read this and more market news on the go with Yahoo Finance App.
If stock prices only went up after you got confirmation of good news, then investing would be pretty easy.
Unfortunately, that’s not quite how it works.
In theory, a stock reflects the present value of all the future cash flows a company is expected to make. And as time goes on and those expectations evolve, a stock will fluctuate. More or less.
Simply put, stock prices mostly reflect expectations for the future, and not so much what’s happening now or what’s happened in the past.
This is relevant today as the S&P 500 has rallied sharply from its Oct. 12 low, and yet corporate earnings are deteriorating, economic growth is slowing, and unemployment is expected to rise. Meanwhile, the Federal Reserve is expected to hike interest rates again this week, which should put even more pressure on the economy.
The apparent divergence between the stock market and the economy does not necessarily reflect irrational behavior. Rather, the stock market may just be anticipating a bullish turn in the economy in the weeks and months to come.
Michael Cembalest, chairman of market and investment strategy for JPMorgan Asset Management, explored these relationships in an Oct. 19 research note with some illuminating charts. (Via Michael Batnick)
“There is a remarkable consistency to the patterns shown below: equities tend to bottom several months (at least) before the rest of the victims of a recession,” he wrote.
As you can see, stock prices (dotted blue line) tend to inflect upwards before we see improvements in earnings (red line), GDP (yellow line), and employment (purple line).
Cembalest notes that the dotcom bubble of the early 2000s was an outlier in the pattern with earnings inflecting ahead of a market bottom. However, the market rally did begin before the labor market turned around.
“As for the latest bear market, it appears on the right,” he argued. “I see no reason why this cycle will not end up looking like most of the other ones. If so, the bottom in equities will occur even as news on profits, GDP and payrolls continues to get worse.”
It’s certainly possible that the S&P will fall below its October low before inflecting higher. And it’s certainly possible that would signal further deterioration in the economic data. Investing isn’t easy and perfectly timing market bottoms is nearly impossible.
The bottom line: Don’t be surprised to see stock prices move higher even as economic conditions deteriorate. It just might be the case that the economic data will soon turn, in which case the market bottom would’ve happened long ago.
Economy
9:45 a.m. ET: S&P Global U.S. Manufacturing PMI, October final (49.9 expected, 49.9 during prior month)
10:00 a.m. ET: JOLTS Job Openings, September (9.750 million expected, 10.053 million during prior month)
10:00 a.m. ET: Construction Spending, month-over-month, September (-0.6% expected, -0.7% during prior month)
10:00 a.m. ET: ISM Manufacturing, October (50.0 expected, 50.9 during prior month)
10:00 a.m. ET: ISM Prices Paid, October (53.0 expected, 51.7 prior month)
10:00 a.m. ET: ISM New Orders, October (47.1 during prior month)
10:00 a.m. ET: ISM Employment, October (48.7 during prior month)
WARDS Total Vehicle Sales, October (14.50 million expected, 13.49 million prior month)
Earnings
Eli Lilly and Company (LLY), Pfizer (PFE), BP (BP), Advanced Micro Devices (AMD), Sony Group (SONY), Mondelez International (MDLZ), Airbnb (ABNB), Eaton Corporation (ETN), Marathon Petroleum (MPC), McKesson (MCK), Uber Technologies (UBER), Thomson Reuters (TRI), Devon Energy (DVN), Phillips 66 (PSX), American International Group (AIG), Sysco (SYY), KKR & Co. (KKR), Prudential Financial (PRU), Sirius XM (SIRI), ZoomInfo Technologies (ZI), Clorox Company (CLX), Match Group (MTCH), H&R Block (HRB), Western Union Company (WU), SoFi Technologies (SOFI)
—
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
The abrupt and rapid collapse of the FTX cryptocurrency exchange has caused a shock in the crypto space. The fall, in a few days, of a company valued at $32 billion in February, ended up casting suspicion on the entire young industry of financial services, based on the Blockchain technology. Retail investors have fled, while institutional investors, linked to FTX and its sister company Alameda Research, are still determining their losses from their exposure to Sam Bankman-Fried's empire.
U.S. stock-index futures sank Sunday night, as Asian markets fell following widespread public demonstrations in China and as oil hit a 2022 low.
Futures fell amid China Covid unrest. Be cautious as the S&P 500 faces a big test with key economic data due.
It's been challenging to hold Alibaba's (NYSE: BABA)stock over the last two years as it lost more than 70% of its market value. As the stock price fell, investors questioned whether Alibaba had reached its prime and was bound to decline further. While it's still early, Alibaba's latest earnings result justifies my earlier decision.
With many growth stocks trading far from their peaks, that cheer might come from the significant opportunities for bold long-term investors in 2023 and beyond. Here's what you need to know about these three stocks to buy in a bear market. Justin Pope (Roku): Roku gained some attention over the past few years as the era of streaming got underway.
These companies have multiple ways they could deliver multibagger growth in a relatively short period of time.
The first six months of 2022 were the worst the stock market has had in more than 40 years, officially entering a bear market on June 13. Despite some recent bouncebacks, investors remain worried. So much so that some have … Continue reading → The post Is the Stock Market Going to Crash in 2022? appeared first on SmartAsset Blog.
In a financial environment riddled with unprecedented levels of uncertainty, investors are at wits’ end. When it comes to finding an investment strategy that will yield returns, traditional methods might not be as dependable. So, how should investors get out of the rut? In times like these, a more comprehensive stock analysis can steer investors in the direction of returns. Rather than looking solely at more conventional factors like fundamental or technical analyses, other metrics can play a ke
Ford Motor Company (NYSE: F) is one of the most recognizable brands in America. There's a culmination of factors that could work against Ford in 2023. Vehicles are big-ticket items for consumers and businesses that purchase them — the average transaction price for a new vehicle was $45,844 as of June 2022.
Best Chinese stocks. China Covid cases are at record highs, but lockdown protests are spreading almost as fast.
Financial services company and digital bank SoFi Technologies (NASDAQ: SOFI) went public in June 2021 with lots of support and plenty of hype. At this point, SoFi finds itself in a bit of a regulatory headache.
(Bloomberg) — Chinese assets slumped Monday as a sense of chaos and uncertainty gripped traders after growing protests against Covid curbs complicated the nation’s path to reopening. Most Read from BloombergNext Covid-19 Strain May be More Dangerous, Lab Study ShowsThe Treasury Market’s Big Recession Trade Is Gathering MomentumUkraine’s Victories May Become a Problem for the USThe Hang Seng China Enterprises Index declined more than 4% early Monday before paring losses by about half. The onshor
Today we will run through one way of estimating the intrinsic value of Plug Power Inc. ( NASDAQ:PLUG ) by estimating…
There is no one-size-fits-all strategy that has the potential to make investors wealthy over time, but there are few approaches that have a better track record of success than investing in dividend stocks. Companies that pay dividends are often successful, profitable businesses — year in, year out — which have generally proven over time that they can withstand market cycles and recessions. The asset managers at Hartford Financial Services looked at the performance of the benchmark S&P 500 going all the way back to 1930 and found there was not a single decade in which dividend stocks in the index didn't generate positive returns, even when the broader market was losing money for investors.
FTX lied. Regulators in the United States and the Bahamas, where Bankman-Fried lives and where FTX was headquartered, have launched investigations. The Bankman-Fried regime has been heavily criticized by the new FTX CEO in charge of the restructuring John Ray, who said that the former trader and his two associates have failed on every level.
The crypto collapse is the product of old-fashioned mismanagement and fraud, not the failure of crypto to disrupt.
In this article, we discuss the best dividend stocks of all time. You can skip our detailed analysis of dividend stocks and their returns over the years, and go directly to read 5 Best Dividend Stocks of All Time. This year has been challenging for investors due to continuous interest rate hikes and an all-time […]
Crude prices have fallen back on a flurry of bearish news, but energy stocks remain resilient as oil firms continue to hand out cash to shareholders
Although growth of the U.S. money supply is slowing, employment trends are strong, lots of cash is left over from the pandemic stimulus, and using credit cards is easy. That has put many people in a buying mood, inflation or no inflation.
Moderna (NASDAQ: MRNA) investors didn't need to have too much patience in the early days of the pandemic. The company brought its coronavirus vaccine candidate from drawing board to market in about nine months. Next year, though, Moderna investors may need to rely on their patience.

source