Three Reasons Stocks Are Rising
Three Reasons Stocks Are Rising
JUNE 4, 2020 Derek Thompson
In the time that U.S. deaths have increased from 100 to more than 100,000, the S&P 500 has gone up 20 percent.
In an age punctuated with almost biblical chaos—plague, brutality, and surreal images of the president posing with a holy book he fumbles like a strange cut of meat—there has been one queasy and bizarre constant: “... and stocks rose.” On Wednesday, U.S. deaths from COVID-19 officially surpassed 100,000, and stocks rose.
On Friday, the Commerce Department reported that GDP plummeted nearly 5 percent in the first three months of the year, and stocks rose. Over the weekend, Americans took to the streets of large cities and small towns to protest the killing of George Floyd and call for an end to years of police brutality and systemic racism against black Americans, as their mostly peaceful movements were often attacked by police and beset by chaos tourists smashing the windows of local stores. And stocks rose.
In fact, stocks seem to do nothing but go up these days. April was the best month for the Dow since the Reagan administration, and stocks were up in May as well. In the time that officially recorded U.S. deaths from COVID-19 increased from 100 to 100,000, the S&P 500 rose by 20 percent. What is going on?
A common answer to that question is that “the stock market is not the economy.” This observation is very popular, technically true, and often useless. Furniture sales, food service employment, and average home values in Idaho aren't the whole economy either, because the economy is a machine of many parts. By comparison, people don’t go around screaming “My neck is not my body!” as if it means something. Your neck is a part of your body, and the stock market is a part of the economy; in both cases, if the former is acting in an irregular way, it’s probably worth looking into.
When we look deeper, the story that emerges is confusing and contradictory. Americans locked in their houses with children, work, and baked bread have created an extinction-level event for small businesses, which has resulted in unprecedented layoffs and furloughs. But thanks to government stimulus, overall income has increased, and Americans have shifted spending to the virtual economy, compressing 10 years of anticipated e-commerce growth into a matter of weeks.
The COVID-19 crisis is simultaneously thrusting Americans into the pre-urban homestead economy of the 1830s, re-creating the Depression-era joblessness of the 1930s, and pulling forward the virtual economy of the 2030s. We are living in the weirdest economy ever.
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