June 2020 Market Review: Economy and Stock Market Diverging Paths
June 17, 2020
Over the last couple of months, many market commentators and investors have been scratching their heads as the economy and stock market moved in opposite directions. The U.S. economy appeared to be in free fall due to the COVID-19 lockdown policies for non-essential services, while the stock market experienced a swift rebound that began in late March and has continued mostly uninterrupted into early June. The U.S. unemployment rate spiked to its highest level since the Great Depression at 14.7% in April as tens of millions of Americans lost their jobs. The U.S. economy contracted 5.0% in the first quarter and economists project a 34.4% GDP decline in the second quarter, the largest decline in the post-World War II era. Meanwhile, the S&P 500 surged 12.82% in April, the index’s third best month since 1940, and added an additional 4.76% gain in May. Since the market bottomed on March 23, the S&P 500 rebounded 36.59% through the end of May and retraced around 70% of the decline from the recent market peak on February 19. The diverging paths of the economy and stock market in recent months may seem difficult to reconcile, but history shows they do not move in lockstep.