Why the stock market's up in a down economy

Can anything stop the stocks?

May 15, 2020 | Editorial | The economy | Business
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It's been a rough few months for the US economy

We're talking nearly 15% unemployment, consumer spending down 7.5%, and nationwide business shutdowns requiring trillions of dollars in stimulus money.

Even giant, blue-chip companies like Berkshire Hathaway and Disney are reporting lower earnings, while buzzy startups have laid off tens of thousands.

But did anyone tell Wall Street?

The S&P 500 has risen 30% in the last six weeks, capping off one of the greatest stretches of growth for the index ever.

The same day it was reported that 20.5 million jobs were lost in April, the Dow actually rose 400 points.

Even analysts have been fielding calls from their own confused clients about why the market continues to rise in spite of what seems to be obvious signs of a shrinking economy.

What could be behind the growth?

The stimulus may be working. Those same trillion-dollar rescue packages have had a "stabilizing effect" on the market, driving asset prices higher.

The major indexes have been propelled by big tech stocks. Apple, Amazon, Alphabet, Microsoft, and Facebook alone for nearly 18% of the entire S&P 500 and have been largely insulated from the effects of the pandemic.

Some might be betting on a "V"-shaped recovery: named that way on the hopes that a rapid decline will also lead to a rapid rebound.

Will this continue?

Recent analysis suggests that economic recovery may look more like a Nike "swoosh," meaning it will take much longer to recover than it did to decline.

Still, another stimulus package could help keep the markets happy: Democrats brought forward a new $3 trillion plan to Congress today, but its passing is far from certain.

Much hinges on future consumer spending data: if people aren't going out and spending this fall, it will deaden optimism that this is a short-term crisis and incite volatility in the market.



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