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If the Economic Outlook is So Bad, Why is the Stock Market Going Up?
Each week, COVID19 related shut downs continue to generate bad news headlines. However, when one looks at the stock market rallies, one might make the mistake of thinking that the worst economic news is behind us and it’s safe to get back into the market.
Explanation #1: The Stock Market Rally is Lagging the Recession Data
The first reason why the stock market might be rallying in spite of poor economic data is because the stock market is lagging recession data. As David Kostin, Chief U.S. Equity Strategist at Goldman Sachs pointed out last week, during the Great Recession, the stock market didn’t bottom out until we were well into the recession:
“[I]n [Q4 2008], there were many different rallies, they’re called bear market rallies, some of which were almost 20% a couple of times, but the market did not bottom until March of 2009.” (Source: CNBC)
Unemployment currently stands at 11% to 12%, surpassing the 2008 Great Recession, but still not as bad as the Great Depression where unemployment was at 25%. However, as the lock-downs from the Pandemic continue, unemployment will likely increase, with some predicting unemployment to reach 20% to 30%. (The Hill: JPMorgan Predicts 20% Unemployment; Bloomberg: U.S. Jobless Rate May Soar to 30%)
