As case counts go up, the market has also risen. What’s going on? Commonwealth CIO Brad McMillan explains the disconnect.
On news that coronavirus case growth was hitting a new high, we saw a bit of a pullback in the market. Since then, however, the markets have started to bounce again, even as case counts continue to increase. Indeed, there seems to be a disconnect between the rising case counts and the rising stock market. What’s going on here?
Market Anticipating Economic Improvement
The first takeaway is that the market has now disconnected from the coronavirus pandemic. Earlier, what seemed to matter was the virus. As case counts rose and fell, the market responded—and that made sense. Then a disconnect came, where the market started to rise again even as cases went up. But lo and behold, then cases started to come down again.
The next disconnect was that the market kept going up even as the layoffs, business closings, and economic damage continued to mount. Then, as the virus came under control and the economy reopened, the economy started to come back faster than anyone expected.
In both cases, the market led the news. But the reason for that is that the market was anticipating economic improvement, not changes in the pandemic. This is, in fact, what the market should be doing: recognizing economic changes and reflecting them.
