- The Dow Jones has bounced 30% of its March lows in a move that left many in disbelief.
- Anger is growing as the stock market climbs in the midst of a devastating health and economic crisis.
- Some disgruntled traders and investors are stuck on the sidelines watching stocks shoot higher without them.
In a gravity-defying move, the stock market has bounced back after the sharpest plunge in history. The Dow Jones is now up 30% after hitting its low on March 23rd.
And it’s making people angry. This might be the most despised stock market rally in history.
Why do people hate this Dow Jone rally?
The anger can be seen across Twitter as amateur traders try to reconcile a roaring stock market with the brutal economic reality.
In one post, research firm CEO Tom Lee outlined his bullish case on the market. He noticed the comments were then littered with “contempt for this equity rally.”
A quick glance through the comments reveal six big reasons for the seething anger.
1. Because it seems insensitive
People are watching the stock market bounce back while thousands are losing family members or fighting for their life in hospital. It seems insensitive for stocks to rally while so many are suffering.
The reason is that people are hurting because of loss of family and friends and no money to live on. How can one be happy about this rally when they feel the world is falling apart around them?
2. Because they missed out on the dip
Some bearish traders spend years calling for a stock market crash. But when it came they didn’t pull the trigger and buy the dip.
People hate this rally cause they’re all angry they missed a lifetime opportunity to buy amazing equities at huge discounts. Now they’re all sitting on a pile of cash and sucking their thumb.
Anyone in this category is not alone. According to a new report, most millionaire traders are still sitting on the sidelines in cash, waiting for another pullback.
3. Because the Dow is propped up by the Fed
It’s no secret that the Federal Reserve has unloaded an unprecedented bazooka of monetary stimulus at the markets. Chairman Powell has used every weapon in his arsenal; emergency rate cuts, buying junk bonds, QE infinity.
It’s a zombie market divorced from fundamentals. Capital allocation is done by the Fed instead of the investor now.
Many say this has created an artificial market which is infuriating some traders.
But as the old saying goes, don’t fight the Fed.
4. Because it’s perpetuating inequality
One of the lasting images of this crisis will be this photo below. The headline reads ‘The Dow’s Best Week Since 1938’. But the caption underneath reveals 16 million newly unemployed. That number has since swelled to 30 million.
It seems hard to justify.
The average American is drowning and the Wall Street folks aren’t. Dissension personified.
Wall St doesn’t understand the sheer anger in Main St that’s boiling up. In a few months when checks run out there could be literal violence.
5. Because of the bailouts…
Bailouts for the banks were unpopular in 2009. And that same anger is coming back now as giant corporations were first in line to receive help.
It’s not anger at the market, it’s anger at a crony capitalist system where corporations get socialism.
6. Because the Dow is detached from fundamentals
Those with a mathematical understanding of the markets are frustrated too. The Dow Jones refuses to trade in line with increasingly poor fundamentals. Earnings are being eviscerated, dividends yanked, buybacks pulled. Economic data is plummeting, manufacturing activity is dead.
Even last week, on news that US GDP decline now officially signals a recession, the Dow moved higher.
Equities are completely detached from value & fundamentals at this point.
Unfortunately for these investors, the stock market has been trading at wildly elevated prices for years. If you’re waiting for it to come back to fundamentals, you might be waiting forever.
It’s painful being a bear
The markets can stay irrational for longer than you can stay solvent.
And in the long term, it has always paid to be optimistic about the markets.
As Jim Cramer said, ‘you don’t have to like it’ but the stock market isn’t the economy. The Dow is a snapshot of 30 gigantic companies. They can weather the storm and come out strong the other side.
More to the point, the stock market is tool for predicting the future. As harsh as it sounds, the market doesn’t care about what’s happening right now. It’s a discounting mechanism. In other words, it looks to the future and calculates prices six months, nine months, a year in the future.
Right now, the market is telling us that something close to normalcy is possible in 2021. Would you really disagree?
This article was edited by Samburaj Das.
Last modified: May 1, 2020 1:29 PM UTC