Asset Allocation

Why Do Stocks Keep Going Up?

I’ve stopped asking why stocks are going up. I’ve accepted the fact that they’re going up simply because they’re going up.

Because there is no other real reason. The economy is in far worse shape than it was last January. Unemployment numbers are far worse a year later, too, but the markets are higher by a good amount.

I know you’re going to say something about how markets are predictors of the future and don’t respond to the present. But right now, if that’s the case, then the future will be perfect forever.

And I don’t know how long you’ve been around, but I’ve been around long enough to know that’s never the case.

The market has priced in near-zero interest rates and near-limitless Fed stimulus for the rest of history.

So I’m not wasting my time asking why stocks are going up; I’m wasting it wondering when they’ll go back down.

And I say “wasting” because it’s impossible to time a top in the market. It’s impossible to nail exactly when a bubble will burst.

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But we’re in a bubble, and judging by the outsized moves stocks are making on a daily basis, we’re nearing the end of it.

Printing and Power

Need an example of ridiculous moves that only happen in bubble territory? Look no further than yesterday.

I opened my investing platform and saw one of my stocks was up over 30% before the markets had even opened.

Plug Power (NASDAQ: PLUG) got a massive investment from a South Korean firm that’ll be partnering with it in the future. In response, investors sent Plug’s shares from around $35 to over $45.

Now, I bought into Plug a while back because I think there’s a bright future for fuel cells — I still think there is. But Plug did about $230m in revenue in 2019, and right now, it’s sporting a $20.2 billion market cap.

Granted, the investment is great and it’ll expand Plug’s market into Korea. Is it really worth 30% more than it was the day before? I don’t know about that.

But Plug wasn’t even the most outsized move I saw upon opening my browser. That one belongs to 3D Systems (NYSE: DDD).

You may remember about five or six years ago when the industry was talking up 3D printing and how it was going to change the world. 3D Systems was the subject of a lot of those recommendations.

But for years, all it did was lose investors’ money. It was up and down and up and back down. But yesterday, the company released preliminary quarterly numbers and the market went crazy.

As of the time I’m writing this (around 1 p.m. EST on Thursday), the stock is up 112% — on preliminary numbers!

Not on an official report. Not on audited financials. And not even on numbers that are incredibly higher than what analysts were expecting. Remember, this is not a small-cap company, people. It should not be moving that way.

But it’s up over 100% in a day. If that’s not an outsized move caused by irrational exuberance, I don’t know what is.

Maybe it’s bankrupt Hertz going from a few cents to a few dollars (even though the company was and is still bankrupt). Or maybe it’s Kodak, the failed camera company, soaring from $2 to $33 in a day.

Or maybe it’s the EV companies that rise and fall by double digits on a daily basis. Or maybe it’s Tesla, where investors value each car the company sells at $1.25 million versus $9,000 per car for GM.

I could go on and on and on, but I think you get the point. These are not the moves of a healthy market. These are the throes of death that come before a market collapses.

 

Originally Posted in Wealth Daily