That all changed last month.
With Friday’s release of the April unemployment numbers we can plot another datapoint and stare in disbelief: The chummy correspondence between the stock market and the labor market has been shattered. Unemployment soared to 14.7 percent, the highest rate since the Great Depression.
Based on the prior data you’d expect the stock market to tumble by a complementary amount. Instead it actually rose: the S&P turned in its best April numbers in decades. Lest you think that’s just a function of the lag between the daily stock returns and the monthly unemployment figures, note that the markets are also up considerably through Friday’s close, reacting to the confirmation of the unprecedented job losses with a 1.7 percent gain.
What are investors even thinking?
First, in case it wasn’t already tremendously clear: The stock market is not the economy. Roughly only half of Americans own any stocks at all, even through job-sponsored vehicles like 401(k) retirement plans. The financial interests of Wall Street and Main Street are often directly at odds; note, for example, the market’s tendency to tank on news of rising wages.
Second, the disconnect between the stock market and real-world economy has been growing for decades. Equities and wages traveled on similar trajectories through the 1980s, for instance, but since then the markets have been on fire while worker pay has languished. A stock rally in response to news of Depression-era unemployment rates suggests that split is growing, and may even be entering a new phase.
Finally, there’s the point raised in a Post story last month that investors aren’t pricing stocks based on what’s happening now, but rather on what they think will be happening in the coming weeks, months or even year.
“Stocks move on anticipation of where people think the economy is headed, not where it is at the moment,” as Howard Silverblatt of S&P Dow Jones Indices told The Post’s Thomas Heath. “Investors perceive that there may be light at the end of the coronavirus tunnel. ”
The markets’ seeming indifference to the unemployment data suggest a widespread belief that the worst of the pandemic is behind us and the economy will soon be firing on all cylinders again. Never mind that many public health experts are putting forth a very different message.
For now, the best most of us can do is hope that the markets are right and the public health experts are wrong.