{"id":8630,"date":"2020-05-11T16:58:32","date_gmt":"2020-05-11T16:58:32","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8630"},"modified":"2022-02-26T13:06:41","modified_gmt":"2022-02-26T13:06:41","slug":"why-are-stocks-rallying-when-the-economy-is-stalled","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/why-are-stocks-rallying-when-the-economy-is-stalled\/","title":{"rendered":"Why Are Stocks Rallying When the Economy is Stalled?"},"content":{"rendered":"\n<p>By April 18th, a record 12.4% of the US workforce was\nreceiving unemployment benefits, with over 30 million submitting jobless\nclaims. Estimates suggest that in the coming weeks, the unemployment rate could\napproach 20%, which would bring the economy closer to levels seen during the\nGreat Depression. U.S. factory activity in April, as measured by the ISM\nproduction index, essentially ground to a halt, as did consumer purchases.<sup>1<\/sup>\nThe U.S. personal saving rate rose to its highest level since 1981, as\nconsumers were either unwilling or unable to spend. &nbsp;<\/p>\n\n\n\n<p>Many readers have likely seen charts like the ones below as\nit relates to the gravity of economic impact, with the unemployment rate dramatically\nspiking (top) and consumer spending falling off a cliff (bottom).<\/p>\n\n\n\n<p><strong>The Unemployment Rate\nSpiked Straight Upward<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/1_image-1-of-2-1024x395.png\" alt=\"\" class=\"wp-image-8631\"\/><figcaption> <br><strong><em>Source: Federal Reserve Bank of St. Louis<sup>2\ufeff<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p><strong>While Consumer\nSpending Plummeted<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/image-2-of-2-1024x395.png\" alt=\"\" class=\"wp-image-8632\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>3<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>As the dismal economic data was blanketing the airwaves and\nnewspapers in April, the S&amp;P 500 marched +12.7% higher, posting its best\nmonthly performance in 33 years.<sup> 5<\/sup> The disconnect between the\neconomy telling one story and the stock market telling another understandably\nperplexes many investors. How can the stock market possibly do so well while economic\nconditions are so dire? &nbsp;&nbsp;<\/p>\n\n\n\n<p>____________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_5_11&amp;content=stock_market_outlook_report  \">Taking Cues from Headlines May Be Costly\u2026Time to Focus on the Fundamentals<\/a><\/strong><\/p>\n\n\n\n<p>Instead of letting fearful headlines and media\nhysteria cause you to make knee-jerk responses, I recommend making decisions\nbased on data and fundamentals. To help you do this, I am offering all readers\nour just-released Stock Market Outlook report. This report contains some of our\nkey forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>10 trends we are\n     seeing in a COVID economy<\/em><\/li><li><em>How will\n     coronavirus continue to impact the markets?<\/em><\/li><li><em>Inside\n     unemployment rates<\/em><\/li><li><em>Is it time to\n     buy U.S. stocks?&nbsp;<\/em><\/li><li><em>What of US GDP\n     growth?<\/em><\/li><li><em>U.S. returns\n     expectations for 2020&nbsp;<\/em><\/li><li><em>What produces\n     2020 optimism?&nbsp;<\/em><\/li><li><em>And much\n     more.&nbsp;<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <br><strong>IT&#8217;S FREE. Download the Just-Released <a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_5_11&amp;content=stock_market_outlook_report  \">May 2020 Stock Market Outlook<\/a><\/strong><sup>4<\/sup><\/p>\n\n\n\n<p>____________________________________________________________________________<\/p>\n\n\n\n<p>Some may argue that the market rally has everything to do\nwith the Federal Reserve. Virtually unlimited monetary stimulus and liquidity are\nmaking its way into the stock market. Others may cite the $2.4 trillion package\nof government spending \u2018propping up\u2019 the economy and markets. I fully\nacknowledge (and support) the role that fiscal and monetary stimulus plays in\nstabilizing the economy and markets, but my response to the \u2018disconnect\u2019 between\nthe economy and the stock market is much simpler: stocks have a long history of\nrallying in the midst of terrible news.<\/p>\n\n\n\n<p>Take the 2007-2009 bear market, for example. When the\nS&amp;P 500 hit its low on March 9, 2009, jobless claims were still rising.\nJobless claims eventually peaked at the end of the month but stayed high\nbasically until the following year (2010). The unemployment rate also kept\ngoing up throughout 2009, with a falling labor-force participation rate and a\ngeneral sense that the U.S. economy was doomed. But by the end of March 2009,\nthe S&amp;P 500 had soared +18.1% off the low, and by the end of the year stocks\nhad rallied +67.8%.<sup>6<\/sup> The stock market was telling one story, while\nthe economy and sentiment were telling another. <\/p>\n\n\n\n<p>Taking your cues from the economic headlines of the day can\nbe a costly mistake. For example, if a person had invested $100,000 in the\nS&amp;P 500 on March 9, 2009, they would have accumulated $630,000 by the time\nthe market peaked in February 2020. But if the investor had waited just three\nmore months to invest (June 2009, when the economic headlines were <em>slightly <\/em>better but still bad), the same\n$100,000 would have only grown to $450,000.<sup>7<\/sup> We can find examples of\nthis type of outcome throughout history. Stocks rarely wait for good news to\narrive.<\/p>\n\n\n\n<p><strong>One Note About\nUnemployment in the U.S.<\/strong><\/p>\n\n\n\n<p>As dire\nemployment data continues in the coming weeks and months, there is a silver\nlining I think investors should keep in mind. <\/p>\n\n\n\n<p>A key differentiator between\nthis recession and past recessions is that a significant number of employers\nare using furloughs rather than outright layoffs to trim the workforce. In\ntheory, this means that re-starting the economy could be less stressful than after\na structural recession (like 2008). When employees are asked to return to work,\nthere\u2019s no need for training, recruitment, job search, background checks,\n\u2018onboarding,\u2019 etc., all of which are costly and time-consuming. Workers can\nreturn to their jobs and immediately be productive. <\/p>\n\n\n\n<p>Time will tell what the\neconomy looks like in the coming months, and whether or how soon many workers\nwill be asked to return. But I\u2019m hopeful it will be relatively soon. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p>Is the stock\nmarket\u2019s rally in the face of bad news an indication that the bear market is\nover and the coast is clear? Simply put, the answer to that question is no \u2013\nand I expect more bouts of downside volatility before this is over. <\/p>\n\n\n\n<p>The overarching message I want to drive home here, however,\nis that investors should not expect the stock market to reflect what you\u2019re\nreading and seeing in economic news. <em>The\nstock market does not respond to what\u2019s happening or already happened in the\neconomy<\/em>. The stock market is forward-looking, a discounter of future\neconomic conditions. Since 1929, the S&amp;P 500 has bottomed an average of four\nmonths <em>before <\/em>a recession officially\nends.<sup>8<\/sup> If you\u2019re waiting for good news before investing in stocks,\nyou\u2019re almost certain to be too late.<\/p>\n\n\n\n<p>So instead of waiting on the news, I recommend focusing on the hard data and fundamentals. To help you do this, I am offering all readers our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_5_11&amp;content=stock_market_outlook_report  \">Just-Released May 2020 Stock Market Outlook Report.\u00a0<\/a><\/strong><br> \u00a0<br> This Special Report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>10 trends we are seeing in a COVID\n     economy<\/em><\/li><li><em>How will coronavirus continue to\n     impact the markets?<\/em><\/li><li><em>Inside unemployment rates<\/em><\/li><li><em>Is it time to buy U.S.\n     stocks?&nbsp;<\/em><\/li><li><em>What of US GDP growth?<\/em><\/li><li><em>U.S. returns expectations for\n     2020&nbsp;<\/em><\/li><li><em>What produces 2020 optimism?&nbsp;<\/em><\/li><li><em>And much more.&nbsp;<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>9<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By April 18th, a record 12.4% of the US workforce was receiving unemployment benefits, with over 30 million submitting jobless [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8630","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8630","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8630"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8630\/revisions"}],"predecessor-version":[{"id":10609,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8630\/revisions\/10609"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8630"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8630"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8630"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}