The Stock Market and the Economy are Not the Same Thing . . .
Jesse Niederbaumer, Vantage Managing Partner & Advisor

Imagine you are walking a dog in a park. You will walk in a straight line from Point A to Point B. The dog will zig and zag on his way from Point A to Point B. As I’m sure you guessed, the human represents the economy and the dog is the stock market.

It’s only been 6 weeks since the COVID crisis started in the U.S. In that time, let’s look at what has happened in terms of the stock market and economy.

Stock market
Sell off during the first 3 weeks
Worst month (March) in market history
-35%+ from peak to trough
From March 23 (the low in the market), stocks have gone up 24%
The gain in the last 3 weeks has recouped close to half of the losses

Economy
22 million new unemployment claims
Economic stimulus passed and starting to flow into small businesses and individuals

Businesses have closed. Some have had to furlough employees or reduce salaries. I’ve received multiple emails in the last 5 days from clients saying their employer is halting matching contributions to 401K/403b plans. Many retail businesses did not pay rent in April. Individuals are unable to make mortgage payments. These are some realities as the coronavirus financial fallout continues.

We hear a lot about how fast the recovery could/will be. We hope it is. When thinking of this, it is helpful to separate the stock market from the economy.

Will stock prices recover quickly and return to the same position in February 2021 as they were in February 2020 (prior to COVID)? Sure, we subscribe to that thinking.

Can the economy recover in the same time period? That seems unlikely. The timeframe for economic recovery is a huge gray area. There is not enough data. We don’t know how long we will be quarantined. Personally, I can’t see my family resuming life as it was until there is a vaccine or at least expansive testing available. If we don’t feel comfortable going out in the public, how can we spend money to help drive economic recovery?

The economy and the stock market will bounce back. The stock market likely comes first with the economy taking longer. How long is dependent upon how long it takes to get a vaccine or treatment. A staged re-entry plan to normal life has been proposed and, in some states, that will start very soon. It is important for all of us to (safely) do our part to contribute.

https://www.fool.com/investing/2020/04/21/why-is-the-stock-market-up-when-the-economy-is-tan.aspx

https://www.wsj.com/articles/the-stock-market-is-ignoring-the-economy-11587160802