There is a movement afoot, mostly on the Right but also on the Left, proclaiming that “it makes perfect sense” that the stock market would be rallying higher and higher, even as the unemployment rate skyrockets (with no end in sight). Nefarious motives are ascribed to the reason behind this. Surely, there is some evil master plan by Bill Gates and the mega rich who populate Wall Street to usurp control of our once-free society–and the stock market rallying (in spite of declining jobs numbers and a collapsing economy) is indicative of the great corporatist takeover.
Certainly, Wall Street is a den of snakes. But the real reason that the market is rallying is simply because the US government has been showering Wall Street with easy money. Everyone on the Street is on a severe sugar high–and they’re expecting more to come from the federal government.
Recently, the Democratic Party in the United States House of Representatives passed a bill that its critics have dubbed as being nothing more than a “handout” for failing Blue States; one which gives US tax dollars to groups and causes that the Democratic Party has long supported. The Democrats’ bill calls for additional relief money to be sent to businesses and workers in distress during this time of pandemic. It amounts to a $3 trillion spending bill ($2 trillion more than the Republican-backed stimulus that was passed back in March of this year), allows for the creation of a $200 billion hazard pay fund for emergency workers; it allots $1 trillion for state and local governments to handle the ongoing crisis; $75 billion in testing for COVID-19; and direct payments as high as $6,000 to American households. The bill also builds upon previous relief efforts in response to the COVID-19 pandemic.
The Republicans have vowed that the Democrat bill is “dead on arrival.” Yet, President Donald J. Trump has said he wants to do a deal to keep the stimulus going. Inevitably, I believe that the president will get his wish and more easy money and bailouts will flood the economy–enriching the wealthy while keeping some of the poorer Americans among us barely above water.
More stimulus juices the markets. The fact that our stock market is going gangbusters as more Americans are unemployed than any other time since the Great Depression is not because we are entering some horrifying phase of totalitarian corporatism. That may be in the offing at some point, but this is not that. The reason our markets are exploding even as our employment collapses and overall economy strangulates before our very eyes, is because of all the stimulus sloshing around–and the promise of basically limitless interventions in the economy “until there is a cure” for COVID-19 (which could be as far as two years away and might actually never arrive).
Writing in Fortune last week, Ben Carlson postulated as much:
One explanation would be the 34% drop from late-February through late-March was pricing in those economic numbers. The simplest explanation would be the trillions of dollars of support from both the federal government and Federal Reserve. This was the fastest, sharpest bear market in history but also the fastest, biggest stimulus package ever assembled.
Then there is also the fact that, historically, America’s greatest crashes are often presaged by a bizarre market rally wherein the market goes gangbusters even as the employment level plummets. This is then succeeded by an inevitable stock market collapse. This is called a “dead cat bounce,” and I warned my readers about this possibility on March 26. We won’t know for sure, though, until we actually go through it and look back at what’s happened and then compare that experience with data from other economic collapses in our history.
One thing is clear, though, there are many potential explanations for why the stock market is rallying even in spite of the continued increase in unemployment numbers (the most straightforward being that we’ve actually hit a bottom to this market and are starting to rally, though I don’t think that’s the case). What’s not going on here is what many of my friends on the ideological Right are prattling on about: this is not some sign of a totalitarian regime rising to crush us all.
Again, totalitarianism is always one generation away from taking hold anywhere (if it hasn’t already). But the current disassociation between the stock market and the economy is not that. We’ve got enough problems going on here than to be laden down with the conspiratorial musings of those who place ideology over facts. And we might very well soon be talking about the “dead cat bounce” rather than some strange conspiracy for our corporate masters to assume greater control of us.