Wall Street looks past the economic pain again
ANALYSIS
NEW YORK — Is Wall Street blind?
The global economy is in shambles, the pandemic has killed hundreds of thousands worldwide and 30 million Americans have lost their jobs as collateral damage in the fight against COVID-19, with the tallies still rising.
Yet, the U.S. stock market just rocketed to its best month in a generation.
Wall Street is also a collection of investors continually looking ahead, setting prices for stocks now based on where they expect corporate profits and the economy will be a quarter or two into the future.
From February into late March, investors sent the S&P 500 down by nearly 34%, anticipating that the number of jobless workers would explode and the economy would tumble into recession. Then in April, as gruesome economic figures confirmed those fears, investors instead focused on a few strands of optimism.
The S&P 500 has surged 27% since hitting a low on March 23, which was the same week that the government reported a record number of U.S. workers filed for unemployment benefits, nearly 6.9 million.
When clients have called in recently at Villere & Co., an investment adviser in New Orleans, they usually start with one question, said portfolio manager Sandy Villere.
“They ask: ‘Aren’t we going into a recession?’ ” he said. “I say, ‘Yes, but the stock market has already gone through the recession, and now it’s coming out of the recession.’ ”
Among the reasons the market chose to look ahead: ■ The Federal Reserve came to the rescue, again.
A famous saying on Wall Street says: Don’t fight the Fed. The central bank is doing everything it can to support the economy, from cutting interest rates to near zero to the unprecedented promise to buy even riskier corporate debt. It’s all aimed at ensuring lending markets have enough cash to run smoothly and prevent prices from going haywire.
■ Infections have leveled off in some areas, and reopenings are on the horizon.
In the hard-hit state of New York, the number of hospitalizations for the virus has dropped back to where it was a month ago after peaking in mid-April.
Some states have laid out plans to gradually relax restrictions meant to slow the spread of the virus.
“This is first and foremost a health crisis, so any trend lines of improvement are good, even if they’re hidden within really terrible human loss numbers,” said Nela Richardson, investment strategist at Edward Jones.
■ Even the terrible economic numbers contain some hopeful signs.
Joe Seydl, capital markets economist at J.P. Morgan Private Bank, has noticed how most of the jobs lost in March were temporary furloughs.
“That was a relative silver lining,” he said. “We know unemployment is going to spike. When you look beneath the surface at unemployment you can look at how much is temporary.”