Skip to content

The stock market: detached from reality

Wall Street analysts often get a tough time. Many people believe they are paid vast sums of money to make predictions that rarely come true.

Few in the finance world would have predicted that after the stock market crashed and coronavirus cases in the US surged, a market rally would follow. The S&P 500 rebounded more than 35% since its 23rd Match low and now trades 10% below its all-time high even as America passed 3 million coronavirus infections.

This proves a long-help suspicion by many – the financial markets are no longer an indicator of a country’s economic health. They probably haven’t been for a long time.

The best example of this is Thursday 7th May. Stocks somehow rose even after the worst monthly US jobs report ever as investors bet the worst of the coronavirus and its impact on the economy has passed.

Analysts at the major financial institutions are now expecting the stock market to “soar” ever as America struggles to contain the rapid spread of Covid.

Many people point the finger at central banks. The staggering amount of quantitative easing unleashed by the Federal Reserve – purchasing US Treasury and corporate bonds – has helped to inflate equities. This had led to strong criticism of Fed Chairman Jay Powell, but markets were sick long before the 67-year-old took charge of the central bank.

The truth is that stocks and the economy do not belong in the same sentence anymore. The financial system is so detached from reality that few regard it as the “natural” system it once was decades ago.

Nobody knows if the stock market will go up or down, even the Wall Street analysts.

Categories

OBO

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: