Despite all that has happened in 2020, the S&P 500 is off just a few percent. However, there are reasons for the recent rally.
If you heard the events that have taken place in 2020 so far and then learned that the S&P 500 was off just 4% for the year to date, you might be surprised. Indeed, many experts have expressed skepticism at the current rally. However, the move up in stocks is not entirely unsupported by fundamentals.
As much as the economy has been weak, economic stimulus has been rapid and vast. Consumers have received stimulus checks. The unemployed have received larger payments. The Fed has supplied liquidity to the market in spades, and corporations have been able to raise debt. The Paycheck Protection Program (PPP) has provided support to smaller businesses. That all amounts to around 14% of GDP. That’s a big number.
Yes, the economy has hit a major shock, but the size of the response should not be understated. The metric that matters is not so much the unemployment rate, but the net hit to economic activity and large stimulus has done a lot to lessen that impact.
