investing / stocks

The "Perfect Storm of Stupid" and other Coronavirus stock market theories

Why has the stock market gone up dramatically (after initial plunge) during a pandemic?
Some ideas… courtesy of Planet Money

The “Perfect Storm of Stupid” Theory

Basically, Americans are super bored. They’re at home. Sports are canceled. The kids are screaming. The casinos are closed. And around 800,000 additional people have decided to plop down money on the biggest roulette table of them all: the stock market. Bloomberg columnist Matt Levine calls it “the boredom markets hypothesis.” Business Insider columnist Linette Lopez calls it “the perfect storm of stupid.” Shiller didn’t shoot this theory down. “This is just speculation,” Shiller says, “but it seems like people want to do something.”

Some other theories:

The Corporate-America-Is-Immune-From-Pain Theory

“The stock market represents only a fraction of the economy: publicly traded corporations. While restaurants, mom-and-pop shops, and other small businesses have clearly been hammered, the majority of them are not listed on the stock market.”

The Fed Theory

“This theory says the Fed is using its unlimited money-printing machine to single-handedly prop up the stock market.”

The FOMO Theory

The fear of missing out is a prominent motivator for investors

The TINA Theory 

Then there is the “There Is No Alternative” theory, aka TINA. It basically says that with interest rates so low, stocks are the only money-making game in town. 

The Efficient Market Theory

“It paints the stock market as a supermachine for information processing, where knowledge about the happenings of the world are all aggregated by brainiac investors, who rationally buy and sell stocks based on the best information of their future performance. The theory basically says stock prices are always right. Under this theory, the rally of the stock market over the last few months reflected rational investors seeing signs that the pandemic wouldn’t be too bad and that the recovery was going to be really good.”

Source: https://www.npr.org/sections/money/2020/06/16/877410547/what-is-the-stock-market-trying-to-tell-us?utm_source=npr_newsletter&utm_medium=email&utm_content=20200616&utm_term=4623696&utm_campaign=money&utm_id=44131415&orgid=
Source: Financial Planning for Women