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Why The Stock Market And Headlines Don’t Match

By June 4, 2020 news

US news headlines have been dominated by reports and updates on the protests and riots across the country. Furthermore, tensions between China and the US rise. And yet somehow the stock market rallied again, with S&P 500 (1,2%) and the Dow (400+ points) in the green.

Wall Street is showing signs of a swift recovery, mainly due to the easy money made available by the Federal Reserve.

Despite the civil unrest across the country, the Nasdaq rallied for the fourth day straight and is now only 1,5% away from the all-time high of 9,817.2. 

The coronavirus lockdown has forced millions of Americans out of their jobs, leaving the US labor market in shambles. On June 5th, the Department of Labor data expects another 1.8 million first-time unemployment claims. Before the pandemic, the United States had never seen over 1mln claims a single week.

Hospitality and tourism are the hardest hit sector, with some businesses unable to survive the prolonged quarantine.

“There is a huge disconnect between the headlines we get every day both in the US and overseas and where the stock market is going,” Alicia Levine, chief strategist at BNY Mellon.

The reason why the stock market and news headlines don’t match is perspective of one against the other. The news focuses on today while investors look forward into the future. The economic reopening in the US and Europe is going better than expected, thus giving positive signals to investors and traders. Optimism rises as governments are being efficient at controlling COVID-19 levels even after the restrictions have been lifted.

Tech, making up a large portion of the index, is still the primary sector that pushes up the S&P 500. However, experts agree that the tech superiority may eventually end and investors should consider adding growth stock to their portfolio. In the liquidity-driven market, close attention should be paid to what the Fed invests into. Thus said, gold continues to be a good hedge and corporate credit is worth looking into.

“The stock market taking off — and decoupling from the real economy — is exacerbating inequality,” said Kristina Hooper, chief global market strategist at Invesco.