Trying to understand the stock market/economic disconnect? Stop.

From the great cult classic movie “Big Trouble in Little China,”

Jack Burton – “I don’t get this at all?”
Lo Pan – “Shut up Mr. Burton! You were not brought upon this world to get it!”

As U.S. equities continue their relentless march higher, the question reverberating from all corners of the investment world is, “How can the stock market completely decouple itself from economic reality in what is really just the first couple of innings of the COVID crisis?” It has been said that stocks are pricing in a perfect, V-shaped recovery. However, unless you are Larry Kudlow or Steve Mnuchin being shoved out of the White House to spread the message that all is well, there really does not seem to be too many takers of that prediction. Moreover, it really seems to us that we are backing into the V-shaped recovery scenario to explain what is happening with stocks, rather than the other way around.

There really has not been any credible analysis that we have seen to show that a V-shaped recovery is coming. Rather, most analysis, as highlighted by the Federal Reserve in the past few weeks, points to a long, difficult road ahead with regard to economic recovery. Moreover, pronouncements from both corporate and private business leaders predict that major sectors of our economy are going to have to reshape themselves to operate in the world of COVID. Unfortunately, almost of all of the reshaping is negative for economic growth. For instance, this from the Wall Street Journal with regard to something even our grandparents probably took for granted, “Elevator Travel.”

 

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