from Statista.com
— this post authored by Felix Richter
When the Bureau of Labor Statistics announces historically bad unemployment numbers, you would normally expect stock markets to show some kind of negative reaction. It’s a strange time we’re living in, however, and so, despite the BLS reporting the highest unemployment rate in post-war America, all major indices were in the green at the end of Friday’s trading session.
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More astoundingly though, Friday’s gains were only the continuation of a month-long rally that saw the Nasdaq recover all of its 2020 losses and the Dow Jones and S&P 500 climb back from their March lows. While 20 million Americans lost their jobs in April, the stock market had its best month in decades, as investors jumped on every hint of optimism while seemingly ignoring a flood of bad news.
So why did the stock market crash at the outset of the pandemic only to recover once the actual fallout becomes visible? While some argue that this is due to the fact that the stock market is actually a couple of months ahead and that the recent rally is based on the assumption of a quick recovery, others are seeing a disconnect between markets and reality that will eventually lead to another crash. “The gap between markets and economic data has never been larger,” Matt King, global head of credit strategy at Citigroup wrote in a recent note, adding that he considers a V-shaped return to normal as extremely unlikely.
As the following chart shows, all three major U.S. stock market indices bottomed out on March 23, when the number of confirmed COVID-19 cases in the U.S. stood at 43,000. Since then, the outbreak has taken a significant turn for the worse, infecting 1.3 million Americans and killing 80,000 as of May 11. Meanwhile, the Nasdaq, Dow and S&P 500 are all up by more than 30 percent since March 23, seemingly defying the crisis that millions lost their job over.
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