We’ve said it before, The stock market is not the economy.
Usually, this simply means that the fluctuations in the markets may have little to no real bearing on the underlying reality, we may think of an ace, making up the economy. Or that there are many important structural, brazil, that make the markets’ outlook is different from how ordinary citizens view the country”s overall health foundation.
But now, those usual bromides risk for wildly understating the disconnect. In the time-of-COVID-19-the stock market couldn’t be more divorced from the United States’ broader economic situation. Although the S&P 500 index tumbled sharply in March, the coronavirus shut down large swaths of the economy, it had made back almost all of its losses by the first week of June — before dipping again and then quickly rebounding after four weeks.
Even beyond the markets, there has been some data to suggest that the worst fears about the economy in late March and April were too pessimistic. Take it (the jobs report, for instance, which showed a surprising decline in the unemployment even after accounting it is a classification problem with laid-off workers.) But the overall state of unemployment is still to remove the bad by historical standards, which lists numerous important economic indicators that are almost uniformly down to a significant degree from last summer:
Obviously, not every day the core indicator you dropped off the cliff in the face of this recession. Inflation, and the measured by the the sticky-price consumer price index (excluding the ever-volatile the food and energy expenditures), you have dipped some since February, from 2.8 percent year-over-year, to 2.1 percent — but it’s in a relatively normal range. New building permits (a sign of construction, investment, and activity) have been rebounded from an initial dip, and are almost back at last year’s level. And measures of credit risk, such as the The TED spread is, have stabilized, indicating low implied risk of commercial bank default.
But the employment rate, oil prices, consumer confidence and many of the other measures paint a clear recessionary picture. Even as corporate earnings — which in theory, help dictate the prices of the shares on the market suffered their worst quarter since 2008. (This-is-what-you-driven the forward-looking price-earnings ratio forecasts the S&P skyward.)
And look at the stock indexes please continue to rebound much faster than the rest of the economy.
Why is that? As is usually the case in economics, it’s complicated and everyone has a pet theory. A few include the idea that investors are betting on a quick “V-shaped” recovery, rather than the longer, slower, and the “swoosh” shape as many economists have predicted) and banking on corporate profits eventually rebounding in the medium and long run. (And why not? The Federal Reserve’on the toolbar you have made it clear this is a priority.)
Some prominent tech companies at the top end of the market, such as Microsoft, Apple, and Alphabet) actually have reason to think the pandemic could the shift of business in their favorwith so much emphasis placed on the digital shopping center, the communication & entertainment. The rise of algorithm-based trading, you to insulated market somewhat from the shock that could be created by the big news events such as political developments or the protests against racial injustice it is sweeping across the country, since dispassionate algorithms don’t get worried or scared by the news, the way humans jo.
But Tara Sinclair, an economics professor at the George Washington University and a senior fellow at at at at at at the the Indeed Hiring Lab, told me that she thinks the markets are also providing a better place for the rich people to stash their money than the alternatives, like bonds or banks.
“People, particularly the rich, have cut back their spending, so they need to park their funds somewhere like the stock market (especially since interest rates are rock bottom),” she said in an e-mail. “Inequality can mean that, even with millions out of work, there might still be in the library of funds from the high-earning and/or high-wealth individuals.”
Ace, Paul Krugman of The New York Times pointed out relatively early in the crisis, the yield on Treasury bonds, is so low (see the chart above) means that stocks are an attractive option, even in the midst of a recession caused by the once-in-a-generation pandemic.
“The Recent stock market performance could be more about something like savings glut rather than optimism on the future value of the company,” Sinclair told me. It may be more about the S&P 500 being better than anywhere else to put the funds, rather than about the current optimism.”
If it doesn’t you do not have permission mean there’s don’t optimism as a driving investors’ actions, though they. “Maybe (hopefully?) people are investing for the longer term and are viewing the current economic situation, the substantially temporary,” Sinclair wrote.
And it’s worth, alexander, that, despite everything, the markets are not totally separate from the virus that continues to afflict every corner of the world.
When the news of the coronavirus, first hit the VIX the measure of market volatility perhaps known better as the “fear index” — spiked to 82.7, its highest level ever. (The previous high was 80.9, which it hit in November 2008, when the Great Recession to the sparked a massive selloff.) The News of the COVID-19 resurgence earlier this month caused the VIX to surge to 40.8, another abnormally high number outside of recessions, the VIX usually floats between 10 and 20. Despite the rising rates, uncertainty rules the stock market “right now”.
What that means down the line is anybody”s guess. But for now, Wall Street has shown a shocking amount of resilience even as almost every other economic indicator, you took a nose dive. If nothing else, let this be the final confirmation that, for once and for all the stock market is not the economy.
