A tremendous amount of ink has been spilled discussing the supposed quandary of the #equity market’s robust recovery since March, while at the same time #economic improvement has been more uneven and uncertain.
At the heart of this misunderstanding is an apples-to-oranges comparison: the fact is that the #stock #market and the #economy, while connected, are two meaningfully distinct entities.
As a case in point, the correlation between domestic corporate #profits and #GDP #growth collapsed in the 1990s and has hovered near zero for the past three decades.
Furthermore, in today’s environment, the industries that have been most adversely affected by the #pandemic lockdowns (hotels, restaurants, leisure, airlines) hold an outsized impact on #labor markets, but a relatively minimal influence over #financial #markets.
And at the same time those firms that hold the greatest weights in major #market indices also tend to #employ relatively fewer people than did the top #firms several decades ago.
None of that is to ignore the genuine #economic pain being felt by many #SmallBusinesses, which are truly struggling through this period with massive #revenue and #employment losses, but those firms are not the same as those in the major #equity indices.
Finally, many commentators dramatically underestimate the impact of #monetary and #fiscal support, which is a theme we have long argued is of prime importance for #markets today.
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