Today's column was about something people ask me about a lot — the disconnect between terrible economic news and a rebound in stocks. Largely to clarify my own thoughts, here's a thread on financial markets in 2020 so far 1/ nytimes.com/2020/04/30/opi…
The stock market plunged briefly in March, but rebounded strongly in April, to levels comparable to late fall. There hasn't been any comparable swing in economic news, which just keeps getting worse. So what's going on? 2/ 
The first key point is that interest rates have plunged. Here's the rate on 30-year Treasuries, which has fallen almost in half this year. This corresponds to a rise in price: if you bought a $1000 bond late last year, it would be worth around $1800 now 3/
So imagine a company you expect to have fairly steady profits over the long term. The price of that stock should move like bond prices — that is, it should be way up. Even given adverse impacts of the virus, fairly strong stock prices not really a surprise 4/
So what was that March plunge about? For a little while we were on the edge of a major financial crisis. Some companies will very likely go under bc of Covid-19, and there was financial contagion to the rest of the corporate bond market 5/
The best story for that, I think, is the old Shleifer-Vishny 1997 point: even though some corporate debt was clearly undervalued, big losses depleted the capital of firms that would normally bid up the price of that debt 6/
But the Fed rode to the rescue, with massive asset purchases that contained the losses. The incipient financial crisis faded away, while low interest rates continued to give stocks a boost 7/
Two lessons here. First, the Fed saved the world economy from total disaster (again). Second, the stock rebound is not a sign that everything will soon be OK. It's not telling us that the economy is great, but rather that investment opportunities other than stocks are lousy 8/
