Tuesday, July 28, 2020

The Economist explains why the stock market is rallying during the pandemic

I haven't written about the stock market as such since I reported U.S. is officially in recession when I recycled what I wrote in February.
Near the end of February, I wrote "This stock market crash is the one reason I am not revising the recession call I made in CNBC explains how the yield curve predicted every recession for the past 50 years. Without the cornovirus outbreak, I might have to. With it, I still think it's likely."
Since then, the stock indexes have risen, recovering much of what they lost in the crash, even as governors are bungling responses to the pandemic, retail chains are declaring bankruptcy, malls are failing, sports have been delayed and at risk of being cancelled, and the country faces an eviction crisis. The Economist explains why that's happening in Stockmarket v economy: the impact of covid-19.

American stockmarkets have enjoyed a record-breaking streak, even though the country’s economy faces the deepest recession in living memory. Why is stockmarket performance so seemingly cut off from current events, and what does this tell us about how the economy works?
According to The Economist, during the 1950s and 1960s, the U.S. economy and the stock market were much more closely tied together. Now, Main Street and Wall Street can and do move in opposite directions. That's a lesson I learned in the 1970s, when I watched a news report about a company laying off hundreds of employees and its stock price went up. I realized then that what was good for Wall Street was not always good for Main Street. What is happening to stocks during the COVID-19 pandemic shows that is even more true now.

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