The stock market is sporting some rose-colored glasses

Regular people are struggling. But the stock market is actually doing… pretty well?

May 28, 2020

Here’s a headline you might not expect to see amid the worst unemployment crisis in our history: The NASDAQ is pretty close to its all-time high.

That might seem like a fluke, but there’s a long history of investors breaking out a “glass half full” mentality in “glass very empty” times.

A Marker analysis found that in the 5 years after a peak in unemployment, S&P 500 stocks gain 72%. But after an unemployment low point — a sign of a strong economy — they only grow about 25.3%.

Uh, does the stock market know we’re in a pandemic?

Some of the numbers are a little baffling:

  • On a per-share basis, companies on the S&P 500 lost 13% in overall profits in Q1.
  • But in that same period, S&P 500 stocks jumped 30%.

Or take this: In normal times, when a company has an earnings shortfall, it can expect to lose 3% of its value. But right now, with companies reporting basically unprecedented losses? Their shares are only down 1% on average.

Then there’s the unsettling dissonance between the market and most people’s reality. Investors look really out of touch right now, and it has some writers asking why we rely so much on the market.

So what has stocks riding so high?

One theory: Investors already expected huge losses — remember March, when we had one of the steepest market drops ever?

Markets try to predict the future — they’re not necessarily looking at the current moment.

But there’s another power player steering the ship: The Fed. The agency slashed interest rates and bond yields at the right time, and it has kept markets humming despite… y’know… *gestures at the world* 

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