May 8, 2020 - Economy

Coronavirus-driven bad news hasn't stopped the stock market comeback

Illustration of a black arrow going across Benjamin Franklin's face

Illustration: Eniola Odetunde/Axios

Friday's horrific jobs report will catch the eye of even the most casual economic data watcher, but don’t be surprised if the stock market shrugs.

Why it matters: Grim economic news hasn't derailed the market's comeback. The stark difference between what's happening in the coronavirus-hit economy vs. the stock market has never been more on display.

Driving the news: The tech-heavy Nasdaq erased all its losses for the year. It's rallied 30% since late March, while the S&P 500 has risen 23% since then (though it's still lower on the year).

  • Within that same timeframe, more than 33 million Americans have filed for unemployment. And the current quarter's economic contraction is set to be one for the record books while the country is struggling to beat back the coronavirus outbreak.

What's going on: There are a myriad of reasons for the cheery stock market in some of the most depressing times — my colleague Felix Salmon lists them here.

  • Among them: Investors are looking ahead and wagering the snapback will be quick and corporate profits will jump back to pre-pandemic levels.

Yes, but: A slew of Fed officials did rounds of interviews yesterday, and their message was near universal — the months ahead will be bleak and a rebound is a long way off.

  • “I think it’s becoming clear that we’re in for a long, gradual recovery, which is unfortunate. I wish we had a quick bounce back," Minneapolis Fed president Neel Kashkari told NBC's "Today" show.

What they're saying: "The market has too quickly celebrated 'success' on the health care front, without fully appreciating how hard it is to turn the economy back on," Scott Clemons, who's been a strategist at investment firm Brown Brothers Harriman for the past 30 years, tells Axios.

  • Lately, the single question Clemons gets most — from clients, as well as people outside of work — is about the economy-stock market disconnect.

Between the lines: This disconnect is common. Take the last recession, when "the labor market didn't start to show signs of improvement until the end of 2009, at which point the market was already up 44%," Clemons notes.

  • Then, per Clemons, the average person may have said: "I'm out of work, I can't find the job. And on the evening news I see Wall Street traders popping open bottles of champagne."
  • Now, as joblessness is expected to have hit nearly every industry — plus the threat of a second coronavirus wave when states open up their economies — the divide between the stock market's optimism and economic forecasts is even more clear.

The bottom line: The worst may be over for the stock market (for now). The economic bloodletting will be here for a while longer.

Go deeper: High unemployment could be here for a while

Go deeper