It’s Thursday — the day the Labor Department releases unemployment data. Since last week, another 6.6 million Americans have filed initial claims seeking unemployment benefits, bringing the total of new claims to about 16.8 million over the past three weeks.
Naturally, the S&P 500 is up almost 2% as I write this. Why is the market continuing to move up?
It’s All About Expectations
As I mentioned a couple of days ago, the future is starting to look brighter even though the present is horrible.
The growth rate in the death toll is slowing down. The market is flattening out. The major sports leagues are planning to return.
I can't believe I'm saying this, but now might be the time to get back in the market.
Link: https://t.co/DJq8oczeD4
— Matthew Freedman (@MattFtheOracle) April 7, 2020
Investors are getting back into the market in anticipation of a turnaround. They already know the economic numbers are horrible, but the coronavirus numbers are starting to flatten, and those are the numbers that actually matter.
NEW: Wed 8 April update of coronavirus trajectories
NB: we’ve reverted to the 7-day moving average
Daily new deaths:
• General trend in US and UK is still more deaths every day than the last
• Japan joins this chart, deaths tracking ItalyLive charts: https://t.co/JxVd2cG7KI pic.twitter.com/fFoOudxcoT
— John Burn-Murdoch (@jburnmurdoch) April 8, 2020
More people are dying every day — and more people are likely to die today than died yesterday — but the growth rate in the death toll is decreasing, and that is good news. It suggests that our public health measures are working. It means that we — as a country and an economy — might survive the coronavirus.
So it’s not entirely unreasonable for the market to move up despite the painful unemployment numbers: The coronavirus situation looks like it might be improving — and the Federal Reserve continues to do all it can to prop up the economy.
This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic (2/2): https://t.co/4c6wbQYMUw
— Federal Reserve (@federalreserve) April 9, 2020
Sometimes it’s hard to know what to make of the positive market movement, but in this case it’s pretty simple: Investors are viewing this situation optimistically and opportunistically. They are pricing the market right now as if the best-cast scenario is what the future holds for us — just as they did in early in February.
This is normal — and it’s dangerous.
I’m not a financial advisor, and I don’t suggest that you make any decisions based on anything I say or write … but I am unsure the market should be moving up as aggressively as it is.