Call me old school, but I have always believed the value of any stock should be discounted future earnings. Future earnings are of course an estimate, but it is very reasonable to expect most companies future earnings to be much lower in light of the global economic upheaval caused by Covid 19. The rate used to discount future earnings should represent a risk free rate (US Treasury rate) appropriately adjusted for risk. Again, in light of the incredible amount of uncertainty currently existing, a much higher risk premium needs to be added to the discount rate. So lower expected earnings and much more uncertainty means stock prices SHOULD BE much lower. However, that’s not the case.
The current market represents values boosted by the Federal Reserve pumping absurd amounts of money into the system to artificially support the market above what the underlying fundamentals justify. This is not sustainable, very dangerous, and the cost of this will come back to haunt future generations. You know something is very wrong when the market does best when we get bad economic numbers, because that gives the market comfort that the Federal Reserve will keep acting irresponsibly. This is VERY SHORTSIGHTED!
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