Until the pullback in early September, the S&P 500 has climbed almost 25% in 2020 outstripping other sectors. This points to an uneven K-shaped recovery where some parts of the economy such as technology, retail, software services and other growth sectors may recover and grow faster than others.
September 21, 2020 | Foo Boon Ping
- In midst of the COVID-19 pandemic the US experiences the worst economic performance since the Great Depression
- Tech stock prices have been decoupled from indicators such as jobs and economic output
- Stock prices points to an uneven K-shaped recovery where some parts of the economy may recover and grow faster than others
As the US experiences its worst quarterly economic performance since the Great Depression, American stock market indices continue to hit new highs in spite of the signs of a deepening recession with rapidly rising unemployment caused by massive lockdowns in the preceding months as COVID-19 infection and death rates broke new records.
With unemployment rate hovering around 10%, up to 30 million Americans out of work, and the second quarter gross domestic product (GDP) shrinking by 31.7%, this is the worst decline in history.
Notwithstanding the economic meltdown, US stock indices, particularly the tech focused S&P 500 index, have been on an upward path since 23 March 2020, buoyed by the Federal Reserve (Fed) announcement of a range of unprecedented open-ended quantitative easing measures and subsequent introduction of the $2.2 trillion economic relief and stimulus programme by the Trump administration. Further pronouncements by the Fed that it is committed to a soft monetary stance to support economic recovery further bolstered confidence in the markets.
Few would have predicted the speed of the market recovery. The Dow initially tumbled 33% when the severity of the pandemic became evident. Despite the inability of the Trump administration to bring the health crisis fully under control, markets soon recovered and rebounded sharply, perhaps cognisant of the Fed and government’s determination to keep rates low to fuel growth.
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Keywords: Economic Recession
, Stimulus Programme
, Stock Market