The Stock Market’s Improbable Recovery Explained
Judging solely by the stock market, no one would know that the economy is suffering its worst downturn since the Great Depression.
(Bloomberg Opinion) -- Judging solely by the stock market, no one would know that the economy is suffering its worst downturn since the Great Depression because of the coronavirus pandemic. After plunging 34% over almost five weeks in February and March, the S&P 500 Index has steadily rebounded and closed at a record on Tuesday, capping an improbable rebound in which the benchmark rallied 52%.
The reasons for the comeback are no mystery. Swift actions by the Federal Reserve and the government to pump trillions of dollars into the financial system and put money directly into the hands of those consumers who needed it most garner the bulk of the credit. There’s also optimism that one or more vaccines may soon be widely available. To be sure, the rally has been relatively narrow, led mainly by technology and health-care companies. Only about a third of S&P 500 companies are above their mid-February levels, and the average stock in the index is still down about 6%, according to Bloomberg News.
What message is the stock market sending? Bloomberg Opinion columnists have had some ideas:
Why Markets Don’t Seem to Care If Economy Stinks: “The most visible and economically vulnerable industries are also among the smallest, based on their market-capitalization weight in major indexes such as the S&P 500. Markets, it turns out, are not especially vulnerable to highly visible but relatively tiny industries. The 30 most economically damaged industry categories could be de-listed before tomorrow’s market open, and it would hardly shave more than a few percentage points off the S&P 500.” — Barry Ritholtz
Biden Looks Vulnerable. The Market, Not So Much: “As to the broader picture, it is as well to be careful. The presidential election is likely to take more and more oxygen for the next three months, in the U.S. and everywhere else, but the powers of the president can be overstated. Progress fighting the pandemic would matter more. Monetary policy won’t change regardless of the winner.” — John Authers
The Fire-and-Ice Stock Market Can’t Last Forever: “At the same time, there’s parallel exuberance in companies and industries that benefit from the stay-at-home economy and have strong long-term growth potential. Companies that were already growing faster than most, such as Amazon, Shopify and Zoom, have seen their growth accelerate as households rely on e-commerce and videoconferencing amid government-mandated or self-imposed quarantines.” — Conor Sen
Bonds Are Sending the Right Signals Now: “The S&P 500 is up 0.5% for the year thanks to the strength of those five companies [Facebook Inc., Amazon.com Inc., Apple Inc., Microsoft Corp. and Google-parent company Alphabet Inc.], but the other 495 members are down about 5% on average on a market cap-weighted basis. Still, that 5% decline pales in comparison to the earlier 35% plunge in the S&P 500. Goldman Sachs calculates that if those five tech stocks were to fall 10%, the bottom 100 in the S&P 500 would need to jump 90% to offset the decline.” — A. Gary Shilling
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Robert Burgess is the Executive Editor for Bloomberg Opinion. He is the former global Executive Editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.
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