Why Is the Stock Market Rallying When the Economy Is So Bad?

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The latest jobs report revealing record U.S. unemployment highlights a growing rift investors are struggling to reconcile: a rallying stock market and stumbling economy.

Gains in U.S. stocks accelerated Friday after April’s nonfarm payrolls report showed unemployment rose to 14.7%, the highest level on record. It was the latest head-scratching development for many market observers, who have been parsing a steady stream of abysmal economic data while watching the U.S. stock market stage a recovery.

In a matter of weeks, a decade of job gains has been erased. Meanwhile, consumer spending has plummeted as businesses have been shut down around the country and manufacturing activity has contracted at the sharpest pace since the last recession.

The disconnect between the economy and stock market grew more stark this week. The technology-heavy Nasdaq Composite Index entered positive territory for the year, erasing much of its losses from the coronavirus-fueled rout. Other major U.S. indexes also notched strong gains for the week. The S&P 500 rose 3.5%, while the Dow Jones Industrial Average advanced 608 points, or 2.6%. The Nasdaq Composite added 6% for the week.

All three indexes have rallied more than 30% from their March 23 lows.

What is driving this gap? One common wager: Current data on the economy is terrible but it is bound to improve.

Many analysts are looking past the grim economic data, forecasting a speedy recovery as state economies open back up across the country. – read more

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