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I am not the first to ask the obvious question: How can the stock market be doing so well when the economy is doing so badly?
The Information’s Jessica Lessin wondered last week specifically about tech stocks. The Economist devoted a cover story to the topic. This weekend, Fortune’s Anne Sraders wrote a smart piece encapsulating all the arguments why stocks have been so resilient in the face of a massive and rapid economic contraction.
I’ll boil the key points down to two, with the proviso that the first makes sense as far as it goes and the second doesn’t hold up. First, because the Federal Reserve Bank has injected so much capital into the U.S. economy, most big companies that need capital have access to it. With money cheap, investors need to buy stock to earn returns. Second, as Sraders explains well, the market already plunged on the horrible news of widespread destruction. Now it is focused on the inevitable recovery.
This strikes me as wishful thinking. The virus is loose on the land, where 25 million people are out of work. Factories are shutting, planes are grounded, and government budgets large and small are busted. If you think everything is peachy simply because folks in a few states are getting haircuts again, you really shouldn’t be buying stocks.
The effects of an economy that likely will be down at least 5% on the year won’t vanish once a few more people get sick. Tech companies sell their wares in the real economy, the one where there are food lines and uninsured and unexpectedly unemployed people. And just because there’s a recovery doesn’t mean it will be like it was before. But I hope I’m wrong about this.
This edition of Data Sheet was curated by Aaron Pressman.