Episode #26: The Economic Data is BAD—So Why is the Stock Market UP?
This is one of the questions my clients are asking frequently right now: HOW is the stock market performing well when the economic data that’s being released is SO bad? In this episode, I talk about 3 things: what the economic data is, how the stock market and the economy are linked, and WHY the stock market is still performing. If this is one of the questions burning in your mind—listen now.
Outline of This Episode
- [2:37 ] Questions my clients ask me: why are stocks going up?
- [3:25 ] Stock market and national GDP data and percentages
- [6:49 ] How some of the top stocks are performing
- [8:52 ] The stock market and the economy are NOT the same
- [15:14 ] Wall Street: Sometimes bad news is good news
- [19:48 ] The pentagon acknowledged the existence of...
What does the stock market look like?
Looking at the numbers can be confusing, but they can tell us a lot about what the stock market is projecting.
- Dow Jones Industrial Average: As of the recording of this episode (4/29/2020), the Dow Jones was down 16% from its all-time high that was recorded in February. Year-to-date it’s only down 13%. It’s risen 32% since its lowest point this year.
- The S&P 500: The S&P is down 13% from it’s high for 2020. Year-to-date it’s only down 9% and up 31% from its lowest point.
- NASDAQ: The Nasdaq is only down 9% from it’s high. Year-to-date? It’s flat-lined—only down half a percent. It’s up 42% from its bottom.
While the stock market is still down, it performed well in April given the economic circumstances we find ourselves in. It was announced that out 1st quarter GDP was negative 4.8% --- a full 1% WORSE than what was expected. Yet, the stock markets rallied. Amazon, Apple, Microsoft, and Caterpillar all went up in April. Why does any of this make sense? Keep listening to find out!
How the stock market and the economic data correlate
In March, most indexes were down 40% or so, give or take a few percentage points. Plus, we witnessed the fastest bear market in history too. We experienced a 3-week crash. US payroll plunged 701,000. Jobless claims exceeded 8 million. Jobs may not come back for years after this economic plunge. Yet the stock market continues to rally.
That’s because the stock market and the economy are not 100% correlated. The stock market and the economy are NOT the same and don’t do the same thing. Nor do they perform or move in lock-step with each other. The stock market tends to be a forward-looking indicator, often predicting what things will look like in 6 months.
In April we saw some comebacks, which begs the question—is it the performance of the March version or the April version of the stock market that will predict the future? Will we have a V-shaped recovery, or will it be a slower U-shaped comeback? 2nd quarter GDP is projected to be anywhere from -10 to -40%. The bottom line? Only time will tell.
Bad news is good news and good news is bad news
I get it. You’re probably thinking “Hold up Rockie—wait a second—that makes ZERO sense!”. I know, it’s confusing. But here’s why it makes sense: When good news about the economy breaks, Wall Street begins to worry the Fed will hike interest rates. Conversely, when bad economic data is released they expect the federal reserve to slash interest rates. This sometimes triggers good performance in the stock market. It all depends on what Wall Street chooses to focus on, on any given day.
The Coronavirus overwhelmed the news cycle and we missed something HUGE
Guys—the Pentagon acknowledged the existence of UFOs and no one cares. They confirmed that 3 videos that have been circulating for years indeed show what they’ve now termed “Unidentified Aerial Phenomena” (their attempt to avoid the stigma associated with “UFO”). The Coronavirus, the economy, and the stock market have so dominated the news cycle and our very existence so much so that a topic that would’ve been headline news is on the sidelines.
But back to the task-at-hand—the economic data paints a different picture than the stock market and vice versa. To hear the full-details—the ins and outs—listen to the whole episode of Making Finance Fun!
Resources & People Mentioned
- US Payroll Plunges 701,000
- Economists on Return of Jobs
- Jobless Claims Exceed 8 Million
- Weekly Jobless Claims Double
- States Hit with Biggest Job Losses
- ISM Manufacturing Index at 49.1
- The Effect of the Coronavirus
- Pentagon Acknowledges Existence of UFOs
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