I would guess that most unemployed people don't have money in individual stocks in the market. In fact, 85% of all stock is owned by the richest 10% of Americans.

While it is true that a slim majority of Americans have some stock, the vast majority of that is in retirement plans, not brokerage accounts.

I've heard the following theory:

Most trading volume is algorithmic, so it only takes a small number of real humans doing unusual trading activity for markets to move.

I've phrased it like this because I don't have expertise.

The theory's going around, but it doesn't ultimately make much sense. Algorithmic trading is still set up and managed by humans on a day-to-day basis, so it can't by itself explain persistent market highs.

If people defer to the algorithm instead of sanity checking it the explanation works, but you're relying on some willful ignorance on part of the traders. Or perhaps massive disconnect from reality.

“ only takes a small number of real humans doing unusual trading activity for markets to move” - WHAT? Link? Proof? Obviously false unless “small number of people”=folks like Buffet

I think the concept is similar to how BTC (and other crypto) have major price fluctuations that get reported and acted on via liquidity from a vanishingly small proportion of the actual total BTC. There's reasons, differences, nuance, etc, but I think that's where the thought starts.

If most capital is in rarely-traded funds (I think 90-95% are passive?) then by definition those last 10%-5% active investors are going to set the market, at least in the general day to day.

No. The government is injecting tons of cash into the market. This props prices up and causes inflation, or at very least avoids deflation.

The economic data (https://fred.stlouisfed.org/series/CPILFESL#0 ) is showing deflation. The quantitative easing has so far been deflationary. The Fed can lower interest rates, but it cannot make people spend. People are unemployed and scared, they are not borrowing money, and it shows in the lending data as well (https://www.federalreserve.gov/releases/h8/current/default.h...) where we can see falling numbers in consumer loans and credit cards.

I think people have rushed into stocks because they think that that's the safe haven for their money against inflation as they think the Fed is "printing money" and causing inflation, but the data is showing deflation. If deflation continues, bonds would be the safer place to be.

I am speaking anecdotally here but.. Deflation? I can’t think of a single product that has gone down in price and numerous things are more expensive.

In particular, virtually every single food item at the grocery store is more expensive than it was in March. Am I the only one who has experienced this? It seems like basic staples (milk, eggs, flour) are substantially more expensive than a few months ago.

Some food products have increased in price since the pandemic mostly due to production and distribution chain issues. However, the basic staples you mention are such a small proportion of the budgets of people that even a significant rise in their price won’t move the inflation needle much compared to other categories.

Plenty of products aren't lowering in price, but are getting you more quality for the same price, e.g. a faster CPU or more RAM in your smart phone. Economists consider that a price drop for the calculation of inflation.

That's technically correct, though of course does not feel like it for many people. To the average consumer, a "phone that can play today's games" is the same measurement today as it is next year, and if prices don't change, they might not consider that "quality increase".

You need to consider the whole basket that the CPI is based on including other factors like housing, utilities, and oil/gas. We probably won't see any specific store bought items drop in price but trends overall will reflect deflation. Part of that is the cash injection is not spread over just the US population but anyone that relies on the USD for transactions or backing their currency. Being the default currency has perks.

Oil/Gasoline went down in price early this year quite dramatically. This (as energy cost) is included with a heavy weight in the price index calculation.

Not in Southern California.

Regular costs $3.5/gal

Real prices lag behind deflation. Short term deflation is really only visible in market/financial metrics/prices.

But your other point is probably more correct - supply/demand swings in the short term affect the prices you see more than deflation/inflation.

Technically a gallon of milk should go up in price like 6-10 cents a year, which you might not notice.

I have experienced what you have -- food is about the same or more expensive than before. But the housing market has softened. Retail goods in stores are much cheaper. Clothing is incredibly cheap -- go to an outlet store and you'll see 50% sales everywhere.

How does housing costs help anyone? Nobody is moving if they can help it and costs are tied into long term contracts. I had a standard rent increase since my state allows them during the pandemic.

You are correct - I moved and thought the store in the new area was a ripoff before realizing that food prices are up everywhere. I buy a fair amount of Indian groceries and the prices of many staples is up ~25-30%.

Food and oil prices are volatile and can mask inflationary and deflationary periods, which is why I linked to the consumer price index minus food and energy as that is more accurate.

Well, the Fed is buying corporate junk bonds (bond ETFs) through special vehicles. We are not in the Japan territory where their central banks owns 80% of stock ETFs. This is why no one wanna sell any stocks in the states. Just a psychological boost, not direct stock purchases.

this. The cash is basically on fire now with all the money printing. Thus inflated asset prices

It's not what is reflected in data though, just hype.

That is what 4-6 trillion of money creation by the Fed will do, yes.

Everyone seems to think the stock market going up is always an indicator of an increase in value of those stocks. But there are at least two reasons the price of an asset can increase. One is the asset gains value. The other is the currency loses value. I don't see how anyone can look at the US economy right now, outside of the stock market, and come to the conclusion that more value is being created or profit being made. The unemployment numbers alone tell us there's less being produced, less work being accomplished.

Another factor is most western nation bonds as well as corporate bonds are running close to 0% return. As long as competition for investment is sitting at about 0%, including private equity investments in companies that could fail in the next year due to recession, supply chain issues, or tariff wars, where else are people putting money?

Most employed Americans are still paying into retirement and mostly dumping cash into index funds on the bet that in 20-40 years the market will be up. Private investors and hedge funds are watching the Fed buy up trillions in bad bets, might as well make more bets with a feeling of lower risk. Even Hertz is gaming the system at a time when it's still very uncertain how the US will cope with the pandemic long term.

However, we are seeing a drop in inflation not quite to deflation but down like 3/4 from above 2% to .65% for recent months: https://inflationdata.com/Inflation/Inflation_Rate/CurrentIn...

This my be due to oil price drops in the past quarter with prices going negative at one point. But generally speaking we are not seeing excess inflation, quite the opposite. I think we are going to see a massive drop off in Q3, especially based on recent weak Q2 earnings reports and likelihood of the US not coping well at all.

Consumer price inflation is not the same thing as asset price inflation. They're in two different worlds. Asset price inflation rarely transfers to consumer price inflation, because when you have $100M you are probably putting that into assets (e.g. luxury house) and not buying 1 billion macbooks.