“What’s unique about this period is that the stock market is hostage to the health data,” said Paul Hickey, a co-founder of Bespoke. “Coming into the fall, I think, the economy and the stock market are going to be dependent on how the health numbers come out, and unfortunately none of us know the answer to that.”
It is quite possible that once the coronavirus pandemic is behind us — whenever that may be — the stock market and, more important, the real economy will flourish. Those assumptions are certainly built into current stock market prices.
But pockets of irrational exuberance clearly exist. Hertz, as I wrote recently, is in bankruptcy but wanted to sell new stock anyway, saying quite openly that there was a good chance the stock would be entirely worthless. The Securities and Exchange Commission raised questions about that stock offering, and Hertz canceled it.
But Hertz’s assessment of the stock market climate seemed on the mark. It wanted to take advantage of a “unique opportunity” — the current day-trading frenzy.
Thanks in large part to the Federal Reserve’s intervention in the markets since late March, risk-taking abounds, sometimes in willful disregard of unappealing stock valuations. As I’ve pointed out, the market has often operated as though the current problems of the world, and of public companies, were irrelevant.
Even when stocks make sense in the pandemic, exuberant traders have been pushing prices to stratospheric levels. Zoom Video has become a household name because of the coronavirus, but its earnings are small. Does it really merit a price-to-earnings ratio of 1,421.4 — Apple’s is 28.3 — and a gain this year of more than 270 percent?
Depending on your point of view, traders have either ignored the economic devastation wrought by the coronavirus — or had the wisdom to focus on the earnings that will flow once the pandemic ends.