Why are stocks recovering as the economy declines?
Optimism. It isn’t something many Americans have been able to hold onto during this COVID-19 financial crisis. From small business shutdowns, record-high unemployment levels, and the launch of the largest economic relief effort ever passed in US history under the CARES Act, there has been little for the country to rally for since mid-February.
However, the stock market may be indicating that some shreds of optimism are starting to circulate even though the US economy seems to be in free fall. Since hitting record lows in March, the stock market has made quite a rebound, with the S&P 500 up more than 36% through the end of May. Not only did the COVID-19 pandemic catalyze one of the quickest bear market drops in history, but also one of the fastest rebounds! How can stocks be soaring if the economy isn’t getting any better? How can we account for this timely bounce back without any key performance indicators to signal a recovery?