{"id":419893,"date":"2020-08-30T13:26:00","date_gmt":"2020-08-30T17:26:00","guid":{"rendered":"https:\/\/financhill.com\/blog\/?p=419893"},"modified":"2020-08-30T21:10:09","modified_gmt":"2020-08-31T01:10:09","slug":"why-is-the-stock-market-so-high-in-a-bad-economy","status":"publish","type":"post","link":"https:\/\/financhill.com\/blog\/investing\/why-is-the-stock-market-so-high-in-a-bad-economy","title":{"rendered":"Why Is the Stock Market So High In a Bad Economy?"},"content":{"rendered":"<p><em>Why Is the Stock Market So High In a Bad Economy?<\/em> For starters, the stock market isn\u2019t our economy. These two financial measurement tools actually track different things.<\/p>\n<p>The stock market tracks the valuations of companies that sell products to other companies and individuals. The economy, on the other hand, has an entire sector not captured in the stock market. <strong>Service oriented businesses, such as hairstylists or dentists, don\u2019t register as publicly traded equity<\/strong>, but the sum total of these person-to-person transactions are a large part of our GDP.<\/p>\n<p>As the coronavirus pandemic swept the nation and the world, these types of businesses, if not considered essential, had to close or scale back their offerings. Large scale corporations, however, continued business as usual in some cases \u2013 creating an upswing in the market in spite of the downturn in the economy.<\/p>\n<p>But just how bad is it?<\/p>\n<h2>The Economy is God Awful<\/h2>\n<p>Mandated lockdowns meant non-essential people had to stay home. <strong>This left millions of <a href=\"https:\/\/www.bls.gov\/news.release\/pdf\/empsit.pdf\" target=\"_blank\" rel=\"noopener\">people without jobs<\/a> and small business owners with few options. <\/strong><\/p>\n<p>As most small businesses were deemed non-essential, many entrepreneurs and other business owners had to close up shop. Some filed for <a href=\"https:\/\/tradingeconomics.com\/united-states\/bankruptcies\" target=\"_blank\" rel=\"noopener\">bankruptcy<\/a> while their employees filed for unemployment.<\/p>\n<p><iframe loading=\"lazy\" style=\"margin: 0 auto; border: 0;\" src=\"https:\/\/financhill.com\/widget\/economy\/total-market-cap-gdp\" width=\"720\" height=\"400\" frameborder=\"0\" scrolling=\"no\" seamless=\"\"><\/iframe><\/p>\n<p>This coupled with workers unable to work due to sickness or caring for a sick loved one meant even many essential positions faced personnel shortages, disrupting supply chains across the nation. Remember the toilet paper fiasco?<\/p>\n<p><strong>In June, over 18 million people were without employment. On August 6, 2020, almost 1.2 million more people filed their first-ever unemployment claim<\/strong>, illustrating that the pandemic\u2019s rampage on personal finances, and the economy overall, is far from over.<\/p>\n<p>People also are now <a href=\"https:\/\/grow.acorns.com\/protect-retirement-during-pandemic\/\" target=\"_blank\" rel=\"noopener noreferrer\">worried about their retirement savings<\/a>. Even with the promise that stock market appears to show, there\u2019s still the potential for another overwhelming crash like earlier this year.<\/p>\n<p>But right now, the stock market looks so good\u2026<\/p>\n<p><iframe loading=\"lazy\" style=\"margin: 0 auto; border: 0;\" src=\"https:\/\/financhill.com\/widget\/stock-score\/SPY\" width=\"720\" height=\"500\" frameborder=\"0\" scrolling=\"no\" seamless=\"\"><\/iframe><\/p>\n<h2>The Stock Market is Soaring<\/h2>\n<p>Seeing the stock market as \u201cup\u201d depends a little on where you look, but there are several stocks \u2013 especially those in the tech sector \u2013 that are soaring. Apple, Amazon, and Tesla are just a few of these tech stocks that show no signs of slowing down. So, what\u2019s their secret?<\/p>\n<p><a href=\"https:\/\/financhill.com\/search\/stock-score\/AAPL\" target=\"_blank\" rel=\"noopener noreferrer\">Apple<\/a> is up huge for 2020. Even though the tech giant hasn\u2019t seen much growth, the company\u2019s stock is up more than 50% for the year.<\/p>\n<p><iframe loading=\"lazy\" style=\"margin: 0 auto; border: 0;\" src=\"https:\/\/financhill.com\/widget\/stock-score\/AAPL\" width=\"720\" height=\"500\" frameborder=\"0\" scrolling=\"no\" seamless=\"\"><\/iframe><\/p>\n<p><a href=\"https:\/\/financhill.com\/search\/stock-score\/AMZN\" target=\"_blank\" rel=\"noopener noreferrer\">Amazon<\/a> has seen over 70% growth from July 2019 to July 2020.<\/p>\n<p>And <a href=\"https:\/\/financhill.com\/search\/stock-score\/TSLA\" target=\"_blank\" rel=\"noopener noreferrer\">Tesla<\/a> has seen the biggest jump in the shortest amount of time \u2013 50% just in the days since August 11, 2020 when the company <a href=\"https:\/\/www.cnn.com\/2020\/08\/21\/investing\/tesla-stock\/index.html\" target=\"_blank\" rel=\"noopener noreferrer\">announced their stock split<\/a>.<\/p>\n<p>But why on earth \u2013 when the world is experiencing such tumultuous times \u2013 are these stocks soaring?<\/p>\n<h2>Record-breaking stock surges during a recession?<\/h2>\n<p>Tech stocks are carrying the market thanks to the trillions of dollars of <a href=\"https:\/\/www.usatoday.com\/story\/money\/2020\/08\/18\/s-p-500-hit-record-optimism-economic-recovery\/3390056001\/\" target=\"_blank\" rel=\"noopener noreferrer\">federal stimulus aid<\/a> aimed at propping up the failing US economy.<\/p>\n<p>Even though stocks are soaring, the average American isn\u2019t out of the woods just yet. In just over 20 weeks, over <a href=\"https:\/\/www.usatoday.com\/story\/money\/2020\/08\/13\/unemployment-claims-tkm-seek-jobless-benefits-economy-sputters-amid-coronavirus\/3356772001\/\" target=\"_blank\" rel=\"noopener noreferrer\">56 million workers<\/a> found themselves without jobs.<\/p>\n<p>That said, the labor market is showing subtle signs of improvement, helping rejuvenate optimism. While the economy isn\u2019t near as well-off as it was pre-pandemic, the uptick in the stock market shows there\u2019s hope.<\/p>\n<p><iframe loading=\"lazy\" style=\"margin: 0 auto; border: 0;\" src=\"https:\/\/financhill.com\/widget\/stock-score\/AMZN\" width=\"720\" height=\"500\" frameborder=\"0\" scrolling=\"no\" seamless=\"\"><\/iframe><\/p>\n<p>By week\u2019s end on August 8, the number of people seeking unemployment finally fell below one million, coming in at 963,000. It\u2019s the first time since mandated shutdowns that this figure has been this low. However, <strong>at the peak of the housing bubble crisis of 2008 and 2009, today\u2019s figures are still far higher than March 2009\u2019s 665,000.<\/strong><\/p>\n<p>And, while new jobs have been created in the interim since the spring, layoffs are still astronomically high. Around 13 million jobs were lost with the shutdown. July\u2019s unemployment rate was just over 10% &#8211; an historical high compared to February\u2019s 3.5%, the lowest rate in 50 years.<\/p>\n<p><a href=\"https:\/\/www.bea.gov\/data\/consumer-spending\/main\" target=\"_blank\" rel=\"noopener\">Consumer spending<\/a> is apparently on the rise, the housing market is rebounding, and corporate profits look better than first anticipated \u2013 all of which maintain investor optimism.<\/p>\n<h2>Fiscal Stimulus Has Reduced Pain<\/h2>\n<p>The loans the government have provided for businesses and the CARES Act stimulus money for individuals and families has helped ease the brunt of what otherwise would\u2019ve been quite a painful last few months.<\/p>\n<p>Governments and banks around the world funneled money into countries\u2019 respective economies in an effort to ward off a global recession. In the US, this caused the Federal Reserve a deficit of nearly $7 trillion \u2013 and it <a href=\"https:\/\/www.tomsguide.com\/news\/stimulus-check-2-update-status-latest-news-and-how-much-you-could-get\" target=\"_blank\" rel=\"noopener noreferrer\">looks like more stimulus<\/a> might be on the way.<\/p>\n<p>While this deficit might appear appalling at first, let\u2019s examine this a bit closer.<\/p>\n<h2>Federal Reserve Stimulus<\/h2>\n<p>There are a lot of \u201crelationships\u201d in the financial field \u2013 one of these relationships is that between the Federal Reserve and the stock market.<\/p>\n<p>Do you find it odd how the Federal Reserve\u2019s balance sheet <a href=\"https:\/\/financhill.com\/search\/economy\/total-market-cap-gdp\" target=\"_blank\" rel=\"noopener noreferrer\">increases in conjunction<\/a> with the stock market rising?<\/p>\n<p>As the Federal Reserve prints more money, those holding bonds sell these somewhat safe positions to the Treasury \u2013 using the same cash printed by the Federal Reserve. They then take their proceeds and invest in riskier assets \u2013 the stock market \u2013 which causes the rise.<\/p>\n<p><iframe loading=\"lazy\" style=\"margin: 0 auto; border: 0;\" src=\"https:\/\/financhill.com\/widget\/economy\/spx-vs-federal-balance\" width=\"720\" height=\"400\" frameborder=\"0\" scrolling=\"no\" seamless=\"\"><\/iframe><\/p>\n<p>In other words, the economy is certainly not in good shape, but you can see from the above how the economy and the stock market are not the same thing.<\/p>\n<p>Here\u2019s another breakdown of the above:<\/p>\n<p>On February 17, the stock market was declining.<strong> The Federal Reserve\u2019s balance sheet showed $4.17 trillion. By March 23, as the stock market was tanking, the Reserve\u2019s balance sheet rose to $5.25 trillion. <\/strong><\/p>\n<p><strong>June 8 saw a peak of $7.17 trillion and by the end of the month a slip to $7.10 trillion.<\/strong> This illustrates the correlation that drove the market higher.<\/p>\n<h2>Why Is the Stock Market So High In a Bad Economy?<\/h2>\n<p>The economy paints a picture of the present, or current, financial situation, while the market illustrates the future.<\/p>\n<p>According to the market, the future might not be so bleak as the economy would have you believe. Or at least it makes the future look just good enough that owning a few stocks appears more justified than owning other types of assets, such as real estate, bonds, or even cash.<\/p>\n<p>This is the key to understanding how the markets and the economy are not the same thing but how they are indeed related.<\/p>\n<p>The market will rise well before the recession is finished. Also, keep in mind \u2013 a recession is the period of time in which the economy declines. Even when an economy is still low, a recession can be considered over if the economy begins to grow again.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Why Is the Stock Market So High In a Bad Economy? For starters, the stock market isn\u2019t our economy. These two financial measurement tools actually track different things. The stock market tracks the valuations of companies that sell products to other companies and individuals. The economy, on the other hand, has an entire sector not [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":419953,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"content-type":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[22],"tags":[],"class_list":["post-419893","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/financhill.com\/blog\/wp-content\/uploads\/2020\/08\/why-is-stock-market-up-economy-bad.jpg","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9czeV-1Let","_links":{"self":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/419893","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/comments?post=419893"}],"version-history":[{"count":3,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/419893\/revisions"}],"predecessor-version":[{"id":419896,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/posts\/419893\/revisions\/419896"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/media\/419953"}],"wp:attachment":[{"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/media?parent=419893"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/categories?post=419893"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financhill.com\/blog\/wp-json\/wp\/v2\/tags?post=419893"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}