How can the stock market go up now?
By Luma Wealth on August 11, 2020
Why the Stock Market & Economy Don’t Move in Tandem
On the same day in June, these two headlines appeared on CNBC:
S&P 500 erases its losses for the year as stocks rally on reopening optimism
AND
The U.S. entered a recession in February, according to the official economic arbiter
The stock market can be strong when the economy is weak
According to John Silvis, Luma Wealth’s Chief Investment Officer, it is actually not uncommon for the stock market and economy to be out of sync because the data is backward-looking and the financial markets are forward-looking. In a recent Town Hall with clients, he shared that since February, “we’ve had a cornucopia of bad news from an economic standpoint.” And, he warned that the second quarter of 2020 “is shaping up to be what is likely the worst economic downturn we will see in our lifetimes,” with a nearly 33% decline in GDP (Gross Domestic Product).* And yet, market returns over that same time period were historically good.
Q2 2020 Market Returns
| Benchmark | Q2 2020 | |
| U.S. Large Cap Stocks | S&P 500® Index | 20.5% |
| U.S. Small Cap Stocks | Russell 2000® Index | 25.4% |
| International Developed Stocks | MSCI EAFE Index | 15.1% |
| Emerging Market Stocks | MSCI EM Index | 18.1% |
Source: Bloomberg as of 6/30/2020.
After bottoming around March 23rd from its early February peak, the S&P 500 climbed back in the second quarter. The markets declined in anticipation of the recession then rebounded in anticipation of an economic recovery.
The silver lining
The good news is that most of the economists we follow seem to think we’ve shifted from recession into recovery, and the financial markets seem to agree. And, it’s encouraging to note that economic expansions tend to last about eight years, on average. However, since a health pandemic is uncharted territory, the future remains unclear, and our investment team will continue to very closely monitor financial data and market indicators to forecast things to come.
Wealth planning is about preparing for the future, including the unexpected. To learn more about accumulating and protecting your wealth, please join us for one of our virtual conversations.
