In many ways, last week was one of the darkest stretches in American history.
The coronavirus death toll in the U.S. — now approaching 21,000 — skyrocketed as families continued to huddle in their homes in fear of what’s next, while an unthinkable number 6.6 million people filed for unemployment amid an economy grappling with a devastating shutdown.
Yet, somehow, the stock market managed to stage its best week in decades. In other words, at least those fortunate enough to own stocks had something to smile about. Democratic strategist Justin Horwitz summed up the disconnect with this tweet that went viral across Twitter
TWTR,
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As you can see, that’s CNBC’s Jim Cramer cheering the rally in the market while the chyron points out the grim reality of the job losses, which reached more than 16 million in three weeks.
One commenter captured much of the response on social media by saying, “The Dow is not the economy. It is a giant government sanctioned Ponzi scheme for the wealthy.”
Another pointed to the fact that, according to Federal Reserve data, 84% of stocks owned by U.S. households are held by the wealthiest 10% of Americans — essentially Wall Street vs. Main Street.
There is some history to back the move. In an analysis published Thursday, investor Ned Davis pointed out that the stock market does better than average when unemployment spikes. Davis’ research shows that a jobless rate over 6% correlates with the stock market rising 13.7% per annum.
“How can this be?” Davis wrote. “It defies logic. My explanation would be that this news is widely followed, and the market tends to look ahead. So it is probably priced in.”
Of course, the Federal Reserve has a lot to do with that, as well.
“When you remove near term bankruptcy risk from every publicly held company regardless of credit rating or near-term financial condition, asset prices should rise,” DataTrek’s Nicholas Colas wrote in a note published on Friday. “Markets know that no matter how bad cash flow might be there is a Fed loan backstop waiting in the wings if needed.”
Read:16 million people just got laid off but U.S. stocks had their best week in 45 years
Source : MTV
