Explaining the Disconnect

As stocks have rallied, readers, friends, and family members keep asking me one question: Why? It's a strange dynamic when 1 in 4 working Americans have lost jobs and stocks are soaring

The best answer I've come up with is this: Investors always look around the corner, and the Federal Reserve seems to have their backs. But for optimistic folks, there is some real data to justify the rally. Some of it comes from the jobless claims mentioned above. But there's more for bulls to hang their hats on these days. Here are highlights from Lisa's other story today: 

Among some emerging reasons to believe that the worst of the economic damage caused by the coronavirus is over is a bounce in consumer confidence this month, breaking a free fall that began in March. On Tuesday, the Conference Board, a private research group, said its measure of consumer confidence rose to 86.6 in May from a revised 85.7 in April.

The improvement was slight and fell short of the rise some economists had anticipated. Still, the bounce in confidence appears to mark an inflection point as the economy reopens, lending some hope that consumer spending springs back more quickly than feared to power the U.S. recovery.

Other data support the idea that sentiment is improving. Cornerstone Macro tracks consumer confidence daily, and chief economist Nancy Lazar says confidence has bottomed at an “impressively ‘high’ level,” despite mounting job losses. That’s probably because many newly jobless workers -- some 87% -- say they expect their layoff to be temporary, and because of enormous monetary and fiscal stimulus that’s been pumped into financial markets, businesses, and households.

For reference, Cornerstone’s daily sentiment index is sitting just above 100. In the aftermath of the financial crisis, it bottomed in 2009 just above 50.

Lisa Shalett, the chief investment officer for Morgan Stanley Wealth Management, notes that market strategists often face an awkward balance between market behavior and economic realities. She told Lisa: "What matters isn’t good news or bad news in an absolute sense, but whether new information is a positive or negative surprise."