{"id":9852,"date":"2020-06-18T06:35:27","date_gmt":"2020-06-18T10:35:27","guid":{"rendered":"http:\/\/staging-prblog.paladinregistry.com\/blog\/?p=9852"},"modified":"2021-01-11T23:53:28","modified_gmt":"2021-01-12T04:53:28","slug":"why-are-stocks-recovering-as-the-economy-declines","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/in-the-news\/why-are-stocks-recovering-as-the-economy-declines\/","title":{"rendered":"Why are stocks recovering as the economy declines?"},"content":{"rendered":"\n
Optimism. It isn\u2019t 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. <\/p>\n\n\n\n
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\u2019t getting any better? How can we account for this timely bounce back without any key performance indicators to signal a recovery?<\/p>\n\n\n\n
Investor sentiment, the Fed, and FOMO. <\/strong><\/h2>\n\n\n\n
At this point in time, consumers seem to be willing to look past the absence of revenue and earnings, the skyrocketing unemployment level, and the burgeoning amount of corporate and sovereign debt to better days ahead. Perhaps the partial re-openings of the economy in over 30+ states or rumors of a vaccine are giving promise to a speedy recovery. Maybe they believe that the economic stimulus efforts will be enough to bridge the gap until the economy is fully re-opened. Either way, the strong market rebound indicates that something is keeping investor confidence afloat and distanced from the deafening requiem of our eleven-year bull market. What could it be?<\/p>\n\n\n\n
Of course, moves by the Federal Reserve and the liquidity created by Congress with the CARES Act have flooded the markets to help carry them through \u201cthe worst of it.\u201d But, from a market psychology standpoint, many investors are throwing funds into the stock market because of (1) 10-year record-low yields on bonds and (2) stock market \u201cFOMO,\u201d or \u201cfear of missing out\u201d on gains made in the inevitable market recovery. In fact, investors with the extra capital have spent the past 6-8 weeks doubling down on stocks while the assets were offered at seriously depressed prices.<\/p>\n\n\n\n
The outlook remains to be seen.<\/strong><\/h2>\n\n\n\n
Don\u2019t be fooled, though. Not all stocks are on the rise. There is a dramatic difference in the way certain sectors are performing. Retail stores and travel have only recovered marginally since the decline, indicating they may not make it through the brighter days\u2014or, if they do, under the guise of a different name, e.g. new ownership. Big Tech, on the other hand, such as Microsoft, Amazon, Alphabet, Apple, and Facebook, which account for more than 20% of the S&P\u2019s total value, appear likely to emerge from the crisis unscathed.<\/p>\n\n\n\n
No one knows how long investors will cling to their last shreds of optimism or how long the markets will continue to rise as the economy falls. As always, the shape of the economic rebound is unpredictable. Macro and micro events, which influence investor sentiment, can cause major buy-ins and sell-outs at a moment\u2019s notice. One positive or negative event can cause stock market prices to change in an instant.<\/p>\n\n\n\n
<\/strong>Markets Recover Quicker Than You Think<\/strong><\/h2>\n\n\n\n
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