EconWatch (July 23, 2020)
For someone who has little experience with economics, it may be tempting to assume that the stock market is a reflection of the economy. Yet, this is not the case, and our current reality is a prominent example of this myth.
In February and March, both the stock market and the U.S. economy showed a steep downtrend due to the recession. However, the parallels stopped there.
Since March, the stock market price has steadily increased and depicted a “V-shaped” recovery. By the first week of June, the stock market had already regained almost all its losses. On the contrary, employment rate, consumer confidence, and other core indicators of the U.S. economy did not see much success, with little to no improvements by June.
Given that the stock market is very abstract, there are many theories as to why only the stock market experienced a quick recovery. Some experts suggest that it is because investors trust that compared to bonds or banks, the stock market is currently a more reliable place to store their money. Others believe that it is because investors are optimistic that the current economic situation will pass quickly and thus place their money into the stock market for long term investment. Read more here.