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Rekenthaler Report

Stock Investors Are From Mars, Bond Investors Are From Venus

The two assets have responded very differently to the coronavirus crisis.

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By the Book
On June 1, Bloomberg's Matt Levine wrote:

Here's a simple model for stocks and the pandemic. The price of a company's stock is the present value of the company's expected future earnings. Earnings for the next while will be real real bad, since the economy has shut down.

Every company's earnings from, say, 2021 until perpetuity will be "normal" in some sense. The economy was growing in 2019, and in 2021 it will get back on that growth trend. ... If in 2019 you built a stock-price model that projected out 100 years of income, you will have to adjust one or two columns for 2020 and 2021, but after that everything can stay exactly the same.

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John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.