Anyone who links current stock market performance to the day to day economic data will find a major disconnect. It's pretty apparent right now with stocks sharply up since the March 'crash' bottom. The data has been awful, the worst seems to be the employment and retail sales figures.
But as shockingly bad as these numbers have been, should anyone be surprised? Maybe these ugly numbers are the end of an economic collapse, and there is nowhere to go but up. If you witness an airplane falling out of the sky heading for the earth, well you know when it finally reaches ground there will be major damage to the plane and surrounding territory.
The data matters, and in a market (stocks, bonds, etc.) driven by Fed liquidity there is nothing more important. Yet, we can't make the numbers dance, we can only react or respond. So, what is the high-flying stock market telling us? First of all, the market is just ONE of many economic indicators. It happens to be forward-looking and right most of the time.
Why does the stock market look ahead? Because there is 'faith' in our country, workers and businesses that even in tough times we manage to figure it out and right the ship. It's been like that for decades, so why not get ahead of the game? The stock market discounts future data just as stock prices discount future earnings.
By the time the good data is out or we see an inflection point (up from down), the stock market has already made its move and will be looking beyond. I would venture to say the market is even now looking past the November election results and into 2021 to see what might be in store.
There is no question the data is ugly, the Fed knows it and has provided a soft cushion landing strip for the crashing economy. Will it be enough? Will they hold it in place long enough? Both important questions, but the only way we can find answers is to watch how the stock market responds.
For 2020, the SPX 500 is down just 4% (through June 4), the Nasdaq is higher by 10%. Stunning moves after a market crash, but likely a belief the economy will get better faster than anyone believes.