Why do markets rise even when the outlook is bleak?

stock market chart

The global economy is on track for its worst recession in nearly 100 years, yet April was the market’s best monthly performance in three decades and they continued to rise in May. Why? 

The first quarter of 2020 has been tough for the global economy in the midst of the coronavirus pandemic. For example, a record 35 million Americans have lost their jobs since mid-March and the UK had its largest jobless claims on record.

Meanwhile, growth has slumped as countries have gone into lockdown. The International Monetary Fund is expecting the global economy to suffer its worst downturn since the Great Depression.

Initially, equity markets crashed some 30% in the first three months of this year, reflecting the bleak prognosis for the economy. But they have subsequently rallied. For instance, the S&P 500 index of US stocks rallied 13.2% in April having collapsed 34% from its previous high.

It was the quickest and sharpest crash in stock market history followed by the biggest monthly gain in 30 years.

Understandably, people are confused as to why the stock markets are moving in the opposite direction to the economy. We spoke to Sean Markowicz , a strategist in Schroders’ Research and Analytics Team, and Stuart Podmore, a behavioural finance specialist, to find out why.

View Full Article – published by Schroders on 3rd June 2020