Hertz Global Holdings Inc. [$HTZ], the car rental giant filed chapter 11 for bankruptcy on May 22 and started selling its fleet of used cars for discounted prices in the open market. But its stock price rose by over 1100% from its post-bankruptcy lows and is currently trading at a price higher than pre-bankruptcy levels, Why?
Chesapeake Energy Corp. [$CHK] announced that it is preparing to file chapter 11 for bankruptcy protections and yet the stock price rose by over 400% and is currently trading above its pre-lockdown levels, Why?
Nikola Corporation [$NKLA], the automobile company hasn’t sold a single-vehicle to date, has zero revenue, and hasn’t even launched a product, is up over %150 in the last 2 days. Its market cap is now higher than Ford, Why?
JCPenny [$JCPNQ], the departmental store announced that it is closing and liquidating more than 1/4th of its stores across the country in preparation for bankruptcy. Yet the stock is up over 200% after those announcements, Why?
This sarcastic headline by CNBC shows how irrational the stock market is turning and its disconnection with the current state of reality.
The stock market is not the economy.
After 40 million Americans unemployed, Consumer Price Index (CPI) hitting the lowest level since 2015, civil unrest in all 50 states, the S&P500 posted an epic rally with over 45% gains. This is the biggest 50-day rally in the history of S&P, despite every economic indicator screams ‘Great Depression’. Thanks to the Fed for artificially inflating the bubble by printing trillions of dollars.
Several companies with declining revenue and with no fundamental reason whatsoever have risen sharply. This is not logical on many levels and some of these rallies are purely driven by speculation. Amature traders with little to zero experience piling on to buy stocks is usually a sign of market top.
On the other hand, most of the local mom-and-pop businesses are struggling for survival and are unable to pay their monthly rents. It is estimated that 9% of mortgages are under some forbearance plan. What happens when the forbearance period ends? What happens to the housing market when these mortgages start defaulting? What happens to all those artificial stock prices when the reality sets in?
While the Fed may continue to artificially inflate, it is very likely that we are in a giant economic bubble that the world has seen in a very long time.
