Why Stocks Are Surging During COVID Crisis/Recession
IN THIS ISSUE:
1. Why Are Stocks Surging During COVID-19/Economic Crisis?
2. Consumer Spending Plummeted by a Record 13.6% in April
3. Alpha Advantage Strategy Webinar Recording Now Available
I want to begin today by sharing with you the latest question I am getting over and over from colleagues and friends. That question is: How have the stock markets rallied to record or near-record highs in light of the terrible economic news due to the coronavirus crisis? While I don’t claim to have the definitive answer, I do have some thoughts on this question which I will share with you just below.
Following that discussion, we’ll look at US consumer spending which plunged by a record 6.9% in March. Then it plummeted by almost double that record amount, -13.6%, in April. We won’t know how much more it dropped in May until late this month. The plunge in consumer spending, while not totally unexpected given the economic lockdown, is very troubling since it accounts for over two-thirds of growth in the economy. The question is, what can we do about it? That’s what we’ll focus on as we go along today.
Why Are Stocks Surging During the COVID-19/Economic Crisis?
To answer this question, let’s start with the bad news. Over 43 million Americans have lost their jobs in the last three months, and even more if we include the self-employed and those who have given up trying to find a job. While many have reportedly gone back to work as the economy has partially reopened, estimates are that at least 25 million remain out of work.
We are now in an official economic recession which began in February, and second-quarter GDP is expected to plunge by 25%-40%, which we won’t know until late July. Anything in that range will mean the worst quarterly economic decline in US history.
We remain in the midst of an unprecedented coronavirus pandemic that has already taken the lives of more than 117,000 Americans. It remains to be seen if there will be a second wave of the outbreak this fall and winter – assuming the first wave ends sometime soon. The pandemic is wrecking the economy across most of the country with no end in sight.