Re:Why is the stock market rallying when the economy is so bad?
by tfehring on Monday May 11, 2020 @12:22AM
(#23138882)
There's a pretty good technical illustration of how the discount rate impacts stock prices here [0].
This does provide one plausible answer to the headline question from TFA: Corporations' expected future profits are lower than they were pre-COVID, but the valuation discount rate is lower because the expected future return for assets in general is lower, so the present value of corporations' expected future profits is the same-ish as it was pre-COVID.
This does provide one plausible answer to the headline question from TFA: Corporations' expected future profits are lower than they were pre-COVID, but the valuation discount rate is lower because the expected future return for assets in general is lower, so the present value of corporations' expected future profits is the same-ish as it was pre-COVID.
[0] https://johnhcochrane.blogspot.com/2018/02/stock-gyrations.h...