Economy

10 Forces Driving the Stock Market Gains and the Economic Recovery

Jon C. Ogg

The economic reports and news from most companies has been grim for close to 90 days. Starting in late February, and coinciding with the prior peak of the stock market, the coronavirus that largely had been confined to China turned into the global COVID-19 pandemic. That brought an instant global recession, and gross domestic product is expected to be down 25% or more, and the real rate of unemployment is expected to be up over 20%. As businesses have been closed and are starting to reopen, there are some bright spots in the economy and in the public.

24/7 Wall St. has covered many aspects of the COVID-19 crisis, as well as how it pertains to the economy and the financial markets. Many cautious trends still cannot be ignored, and a double-dip of any recovery efforts is an ongoing risk. The economic readings are still atrocious on a standalone basis, but they are actually starting to show less carnage each week.

There are many more sectors that could be addressed, and frankly many other aspects on top of “flattening the curve” could be driving positive sentiment about the market, the economy and life in general. Here are ten issues that offer some views to explain the stock market gains, even as the reopening of America’s economy is still in the beginning stages.

The Stock Market’s Lead

First, the stock market is not the live economy and the economy is not the stock market. The S&P 500 was down 35% from its peak, and the Dow Jones industrial average was nearly down 40% from its peak, but they have rallied since the March 23 panic-selling lows. Those drops took an unprecedented five weeks to go from peak to trough. Yet, as of May 21, the Dow and the S&P 500 were down only 17% and 13%, respectively, from their prior highs.

Stimulus efforts include a direct stimulus payment to the public, very generous unemployment benefits, two rounds of the Paycheck Protection Program, the Federal Reserve buying endless amounts of bonds and assets, and the Fed’s monetary and liquidity stabilization plans. These and other efforts have acted to stave off what we called an insta-recession from becoming the Great Depression all over again.

A Cure, Vaccine or Treatment May Still Be Realistic

A second source of optimism comes from biotechnology, pharmaceutical and medical technology companies. Many companies have been bringing out large numbers of COVID-19 testing services, and the number of daily tests has risen exponentially from February and March, when tests were either not available at all or were scarce.

Companies such as AstraZeneca, Gilead Sciences, Johnson & Johnson, Moderna, Novavax and Sanofi are in the leadership positions to create vaccines, treatments and potential cures for COVID-19, even if the companies and officials have warned the public that actual developments would take months, perhaps even years, before they can be counted on. Shortages of personal protection equipment (PPE) are now much less of a problem than they had been in March.

The Peak of Unemployment Already May Have Been Seen

The report of 2.43 million weekly jobless claims for the week ending May 16 is 10 times what had been seen throughout average weekly reports up until March. That said, the initial surge as the recession was kicking into high gear saw its first catastrophic report at more than 6.8 million jobless claims. The following week fell to 6.6 million claims, and the numbers have come down since then.