The world is in the middle of the scariest pandemic in a century. Some companies are barely rasping by, while millions of jobless Americans have put their hopes up on improved government programs to stay floating – yet the markets are catching new highs.
To comprehend the disconnect between the markets and the economy, it can be helpful to understand what determines the U.S. economic system and the stock market.
The stock market points to a public marketplace where stocks and other financial instruments are bought and sold. Stocks describe shares of a portion of ownership of a company. The stock market is often defined by the S&P 500, an unmanaged index signifying the 500 most significant U.S. companies’ shares.
Today’s Market and Economy
Troubling economic numbers betoken an excess of uncertainty at play today.
The August lay-off rate was 8.4%, as told by the U.S. Bureau of Labor Statistics. Estimations from the Bureau of Economic Analysis reveal that gross domestic product, a measure of all the goods and services created within the country, was -31.7% in the second quarter. In addition, this drop came on the heels of a 5% fall in the first three months of this year.
However, as of Sept. 14, the S&P 500 was up 4.73% for the year, including reinvested dividends. Attending the alarming decline for the index in March as the global epidemic started to ramp up, the S&P 500 set an all-time high in August.
This data emphasizes the complexity between the stock market and the economy.
Stocks Are Not the Economy
In the short term, the stock market’s moves are erratic and random.
Also, after a seismic slump in the S&P 500 in March, the market bounced and moved into positive territory. In fact, the S&P 500 opened the year trading at 3,257. To begin this month, the market ended at 3,526 – an 8% year-to-date gain. By Sept. 14, the market decreased again to 3,383.
There’s more to this stock market versus the economy problem than raw numbers.
Roger Ibbotson, a professor at the Yale School of Management, says that it’s just a part of the stock market is actually doing well, before-mentioned as the intangible companies like technology and communication. Right now, several sectors are weakening.
As told by the Yardeni Research, here is how the worst-performing sectors have dropped in 2020 through mid-September:
- Energy is below 46.3%.
- Financials are under 18.9%.
- Utilities are underneath 8.2%.
- Real estate is sliding 6.3%.
- Industrials are falling 3.7%.