Why are stock prices going up when the economy is in ruins? Here’s some helpful context

by Presley Journee

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It’s the question on every investor’s mind.

Google “Why is the stock market going up?” and you get 2.8 billion answers. Yet many of them (we haven’t checked them all) ignore or minimize a significant factor. The once-a-century strangeness of this downturn has combined with the way stock indexes are calculated and an element of sheer chance to produce this apparent contradiction. Understand how that happens, and it all makes sense. Sort of.

There’s a lot to make sense of. Back in January, the economy was growing at a respectable 2.1% annual rate, unemployment was a minuscule 3.6%, and Americans were still spending more money every month, as they had been doing in a nearly unbroken 11-year rise. By all those measures, the economy is now in the worst shape since the Great Depression, with GDP plunging, unemployment officially at 13.3% (suspected by many economists to be higher), and consumption spending in free fall. Yet the S&P 500 index, the most widely cited gauge of U.S. stock performance, was recently down just 1.4% from Jan. 1. It’s up 11.2% from a year ago. 

It’s disorienting. Does anyone think the business environment is 11.2% better than it was last June? With some 30 million not working, are things only 1.4% worse than they were in January? That’s the mystery.

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