Question

The stock market was rallying and going up during early May while bad news for the economic macro indicators were pouring in. Isn't that surprising? Can you explain this?

Answer 1

Stock markets were going up during early May,even if the bad news for economic micro indicators were pouring in, because stock markets are futuristic in nature and they were trying to discount all these events earlier than it was being thought by the participants.

Stock markets are generally discounting the bad events and the bad news when it crashed into the bear market territory and once it started to recover, it was trying to discount the recovery rather than downslide because stock market predicted that the economy is going to recover after the crisis was over, and it started rallying on to the hope that economy will be recovering and it made a fresh new highs because damage was lower than what was estimated.

stock markets are always forward looking and sentiment based and they are trying to discount the future earning of company into the stock prices at the present time and they are not going in line with the current market trends whereas they will be trying to be rational and discounting the future earnings which are easily visible at various times, so one should be trying to be in line with the stock market rather than trying to counter it with rationality.

Stock markets were highly boosted by the reactions of the Federal Government and the Federal Reserve to cut the interest rate and provide various types of bailout packages and issue statements which were pointing at a high rate of economic recovery so it was trying to discount all those events earlier than the benefits was harvested, so it can be said that stock markets are highly futuristic in nature and they are expecting that the damage from this virus is not as lethal as it was expected, and they are also discounting that vaccine is around the corner so stock market has rallied on the hope that market is going to recover because there will be economic recovery and the demand will be flourishing again.