Excess Returns, Ep. 42: Why the Stock Market is Near All Time Highs Despite the Major Issues in the Economy

We are currently in one of the most difficult economic environments many of us will see if our lifetimes. Even though the unemployment rate has fallen from its high of 15% to a level below 10%, it still exceeds the peak from the 2008 crisis, which itself was one of the deepest recessions ever. Small businesses and entire industries, like air travel, cruise lines and hotels are struggling mightily as the various degrees of lockdowns we have experienced in recent months have taken a huge toll. But despite all of that, the stock market currently sits at all time highs. In this episode, we look at the reasons for this disconnect.

We discuss:

Why it is not uncommon for the stock market to become disconnected from the economy;
Why the businesses we see struggling in our everyday lives aren’t the most important ones to the market;
The implications of unprecedented levels of government stimulus;
Why psychology can often explain short-term market moves better than fundamentals.

We hope you enjoy the discussion.