Main Street has suffered through 26 million first-time jobless claims over the last five weeks. We’re witnessing Depression-like layoffs. You’d think Wall Street and investors would have been badly mauled. Most stocks are down, but badly mauled?
Wall Street takes a different path
Since bottoming, the S&P 500 Index has surged 25% though April 23. Technically, we’re in a new bull market given that the advance has exceeded 20%… technically.
The index of 500 major companies is down 17% from its peak. That’s a serious correction but nothing out of the ordinary.
I believe there are four reasons that have prevented a meltdown in the major averages.
- Extraordinary measures taken by the Fed far exceeds the more cautious response during the financial crisis.
- The execution has been far from flawless, but the federal government is doling out over $2 trillion in fiscal stimulus, and more may be on the way. Remember the $787 billion fiscal stimulus during 2009?
- Signs the virus may be peaking have also helped, and investors will be closely watching states that will gradually relax lockdown guidelines.
- Earnings will get hammered in Q2. But investors are looking beyond the second quarter to next year.
V-shaped recovery, U-shaped recovery, L-shaped recovery?
No one knows. The 1918 pandemic and the 1957-58 Asian flu hit the U.S. economy hard, but the respective recessions were the shortest on record.
The bond market is taking a more cautious view, but investors are expecting some kind of rebound soon.
Fiscal and monetary stimulus is laying the foundation for a recovery. A vaccine and an effective short-term treatment would go a long way in boosting Main Street sentiment.
There are plenty of variables in the stock market and economic equation, but without a ‘decent’ recovery, renewed market pressure seems likely.