The Stock Market and Economy: Still Separate

The Stock Market and Economy: Still Separate

Between March 23 and Aug. 1, the MSCI World Index surged 45%.[i] Meanwhile, global gross domestic product (GDP) was down sharply and unemployment was at historically high levels. How can the stock market climb while the U.S. economy is in a significant contraction and facing plenty of political and geopolitical uncertainty?

The economic pain and suffering tied to our current economic contraction are real. Many people are out of work, many businesses are in danger of bankruptcy and cities across the country face significant budget shortfalls. And yet, against this stark backdrop, stock prices march higher. Is this the sign of a world gone mad or of a new relationship between the market and economy? Should we worry or cheer? Stop investing or buy more stocks?

At Fisher Investments, we don’t believe stocks’ recent rise is a sign of madness nor that it marks a new disconnect between the economy and the stock market. Granted, COVID-19 has certainly offered plenty of novelty. In just a few weeks, it drove stocks from all-time highs into bear-market territory, due to the government-imposed economic lockdowns put in place to slow the spread of the virus. While the historical particulars and the social and cultural context are new and unique, what isn’t new, in our opinion, is the likely longer-term outcome.

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