Why the stock market feels immune to the pandemic

ADP Chief Economist Nela Richardson says the US job market will continue to struggle until a stimulus is passed and a vaccine can be widely distributed.

Posted: Dec 10, 2020 8:43 AM
Updated: Dec 12, 2020 10:30 AM


Unless you've been studying birds on a remote island in the South Pacific since last February, you know there's a worldwide pandemic going on that's ground large portions of the economy to a halt.

If you've paid any attention to Capitol Hill, you know lawmakers are having huge problems getting a new $1 trillion-ish stimulus package passed even though Democrats, Republicans, business leaders and the Federal Reserve have all said the government must pump this money into the economy.

But if you're lucky enough to have a 401(k), you may also have been shocked to see your bottom line grow. Maybe a lot.

The stock market is never exactly indicative of the economy, but right now the stock market seems to be operating on its own planet. I went to CNN Business' Matt Egan to understand what the heck is going on.

Our email conversation is below.

Pandemic? What pandemic?

WHAT MATTERS: I've read in your reporting and elsewhere that the stock market is not the economy. But this year, the two seem to be completely out of whack. What's happening?

EGAN: Looking at the stock market's 2020 performance, you'd never know there was a once-in-a-century pandemic. The S&P 500 is up 13% on the year. The Nasdaq is on fire, up 37%!

In a nutshell, investors are sniffing out a recovery long before it's felt on Main Street. Wall Street is looking past the intensifying pandemic, and weakening economy, and focusing on six months out. And there's growing confidence that highly effective vaccines will let the economy bounce back during the second half of 2021.

The Fed and Congress acted fast and kick-started recovery in the spring

WHAT MATTERS: The market dropped steeply after the 2008 financial crisis. Why has it not been affected by an even more distressing pandemic?

EGAN: Just like during the Great Recession, the pandemic did rock the stock market. At its low point in March, the S&P 500 was down 31% on the year. But the rebound was lightning fast, in part because the economic downturn didn't last as long. The economy was growing, rapidly, by the summer. The V-shaped recovery on Wall Street was also driven by emergency actions by the Federal Reserve and Congress that prevented this health crisis from morphing into a full-blown financial meltdown.

The corporate economy can survive what kills your neighborhood economy

WHAT MATTERS: I'm in the market with a 401(k) and I honestly know very little about what is actually in there. How should people like me view what's going on with the market vs. the economy?

EGAN: It's so important to remember that the S&P 500 represents the fortunes of corporate America, not Main Street. It's made up of some of the nation's largest companies, ones that have the financial firepower to ride out the storm. That means the stock market can go up even while mom-and-pop shops like restaurants are going dark at an unprecedented pace. It's a different universe, for better or worse.

The biggest market winners in 2020 are the companies that actually benefited from the disruption set off by the pandemic. Think: Amazon, Zoom, Peloton, Moderna and Chewy. Companies most exposed to the real economy -- industrials, energy, banks -- have lagged behind. But that should change when the recovery gains steam.

There is a FOMO factor

WHAT MATTERS: To the extent I understand what drives the market, it's usually something along the lines of, 'investors were spooked by...' or 'investors approved of...' -- as if they're a monolithic being. They're not, but to what extent is there a sort of group-think in play, and who dictates what the group-think will be?

EGAN: 'Crowding,' as it's known on Wall Street, is a huge factor. At times, investors pile into favorite stocks all at once and then dump them just as quickly. There's not a single person who calls the plays. It's more investors watching the trends and not wanting to get left behind (FOMO). But investors with long-term horizons should ignore these fads (or try to at least) and stick to what they think will work in the long run.

Why does Wall Street care about stimulus?

WHAT MATTERS: If investors are looking at one thing today, it's probably whether or not Congress can or will pass a massive new stimulus package. But that stimulus, while it does offer some help to the airline industry, would do more to help the unemployed and gig workers, who might not be in the market, and small businesses, who aren't listed on the market. Why should the market like stimulus?

EGAN: It's a valid question. One, the market can shrug off short-term economic weakness, but not a total collapse in the economy. And there are growing signs that the job market recovery is stalling out. At some point, that's bound to derail the stock market.

Two, extending unemployment programs will give Americans most in need money they can use to keep spending. And consumer spending is the biggest driver of the economy. The bottom lines of Starbucks, McDonald's and Target depend on it. And lastly, extending aid to small businesses and unemployed Americans could limit bankruptcies and credit card defaults that would causes losses for banks.

What will it take to address inequality?

WHAT MATTERS: I've read a lot this year about how the market may drive inequality since most Americans are not actually in the market. Do you think there are any workable solutions to this issue?

EGAN: The pandemic is undoubtedly widening the gap between rich and poor. And yes, that's partially because millions of Americans can't feel the market boom. Only about half of US families have some level of investment in the market. And the rich have far more skin in the game. The wealthiest 10% of households own 87% of all stocks and mutual funds, according to the Fed. There is no simple fix to this problem -- but it's clearly one that can't be solved by the Fed. Inequality will have to be tackled by Congress and the Biden administration working together.

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 921249

Reported Deaths: 9678
CountyCasesDeaths
Hennepin1797812046
Ramsey744701052
Dakota68081589
Anoka64523585
Washington40846364
Stearns33805283
St. Louis29764413
Scott26116187
Wright26105223
Olmsted22502130
Sherburne19117128
Carver1677569
Clay12183107
Blue Earth1154270
Rice11505139
Crow Wing11275124
Chisago999580
Kandiyohi9861108
Otter Tail9860129
Benton9098126
Beltrami819598
Goodhue816899
Douglas7929101
Itasca777299
Mower736349
McLeod718284
Winona711658
Isanti704785
Steele689234
Morrison675380
Becker630474
Polk606187
Freeborn564847
Carlton549875
Mille Lacs535179
Lyon530961
Nobles526954
Nicollet525661
Pine517943
Cass503253
Todd494143
Brown471760
Le Sueur460534
Meeker435459
Martin388244
Wabasha377410
Waseca375933
Dodge364312
Hubbard356049
Roseau318631
Fillmore307415
Wadena304740
Redwood282145
Houston272417
Renville269851
Faribault259435
Sibley254417
Pennington253430
Kanabec251837
Cottonwood231232
Aitkin223751
Chippewa221242
Pope209410
Watonwan200021
Yellow Medicine189223
Rock178229
Koochiching177825
Swift173423
Stevens169311
Jackson161716
Clearwater158721
Marshall154222
Murray152711
Pipestone150529
Lake133624
Lac qui Parle123525
Wilkin121516
Mahnomen106414
Norman10569
Grant101810
Big Stone9555
Lincoln8885
Kittson73623
Red Lake71610
Traverse6076
Unassigned569124
Lake of the Woods5265
Cook3131

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 527597

Reported Deaths: 7379
CountyCasesDeaths
Polk81677809
Linn32838430
Scott27126295
Black Hawk22334382
Woodbury20736263
Johnson20150108
Dubuque18996243
Pottawattamie16215214
Dallas15573115
Story1398059
Warren8637107
Cerro Gordo8141125
Clinton7928115
Webster7419124
Des Moines7153106
Marshall675494
Muscatine6717117
Wapello6546145
Jasper630591
Sioux622477
Lee5977106
Marion567697
Buena Vista503449
Plymouth493388
Henry427155
Benton414760
Jones413564
Bremer403873
Boone397042
Washington395464
Carroll373355
Mahaska372366
Crawford355647
Jackson324047
Dickinson317555
Buchanan312743
Delaware303255
Clay297636
Kossuth293477
Fayette290356
Hardin289253
Tama282878
Page276133
Wright270050
Cedar269527
Winneshiek267744
Hamilton262757
Floyd261049
Clayton252360
Poweshiek242043
Harrison240979
Madison237425
Butler237346
Cass235667
Iowa234336
Jefferson228544
Mills225330
Hancock222840
Winnebago222339
Cherokee217347
Appanoose210157
Lyon209842
Allamakee209456
Calhoun199519
Shelby199542
Union197141
Unassigned18890
Humboldt188231
Franklin188031
Grundy186137
Chickasaw184522
Mitchell184343
Emmet180146
Louisa178653
Sac175626
Guthrie169338
Clarke163629
Montgomery163146
Keokuk152639
Palo Alto152332
Howard150624
Monroe144340
Ida134141
Greene128818
Davis126825
Lucas126127
Monona124940
Worth12309
Pocahontas122125
Adair118239
Osceola105718
Decatur104813
Taylor100914
Fremont98913
Van Buren95922
Wayne86125
Ringgold78429
Audubon77617
Adams5869
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