Global economies are in recession. But the stock market seems to be having a rally. This article below examines various reasons for the disconnect.
I personally think it has to do with easy money flooding the market. With interest rates at near zero or even negative, there’s a lot of cash out there. But no one is ensuring that this good money is not chasing after bad money.
For example, if people are borrowing money to invest in airline stocks and cause a rally there. That’s not investing; that’s “gambling”. And there will potentially there will be a group that may not get out fast enough if a sell-off of the stock suddenly happens. And there is also the possibility that that airline may not even survive in view of the air travel situation. That will leave financial institutions with a heap of bad debts when the borrowers have placed their money in assets with questionable intrinsic value.
On the other hand, there are some stocks that are rising because of a surge in demand for the company’s products. For example, Malaysian companies in the business of glove manufacturing has experienced a surge in their stock price. Likewise, groceries companies. With credit flooding the market, we should be wise in how it is used and invest in companies that are rising instead of their stock price being Low.