The Stock Market Is . . . Pretty Normal

Josh Barro tries to explain why the stock market has been doing so well in the middle of a global pandemic:

First, stock prices are supposed to reflect market expectations of the future profits of corporations….There has been news in recent weeks that gives us good reason to believe companies will be less profitable this year than we would have thought a few weeks ago. But there has also been news about medical research developments that provides reason to believe companies will be more profitable in future years than we might have expected a few weeks ago.

….Second, the most commonly discussed measures of stock prices, like the Dow Jones Industrial Average and the S&P 500, focus on very large companies. Large companies have more financial resources at their disposal than small ones do, and may be better positioned to weather a bad 12 months as they wait for vaccine hopes to come to fruition.

….Third, interest rates have continued to fall, and low interest rates boost the prices of many kinds of assets, including stocks.

That’s all reasonable enough, but I think my answer might be different. Instead of using a thousand words to explain it, though, here’s a single picture:

The red line is the trendline of the S&P 500 from 2015 through February of 2020. As you can see, the S&P 500 today is exactly on that trendline.

In other words, the stock market hasn’t soared recently, it’s merely made up its panic losses and gotten back on its old trend. Investors have apparently decided that 2021 will be about the same as they had always expected before COVID-19 struck. If you look at stock indexes around the world, you’ll see a pretty similar pattern everywhere.

So I wouldn’t say that investors are especially exuberent or anything. They’ve just decided that the early panic over COVID-19 probably wasn’t justified. I hope they’re right.

THE TRUTH...

is the first thing despots go after. An unwavering commitment to it is probably what draws you to Mother Jones' journalism. And as we're seeing in the US and the world around, authoritarians seek to poison the discourse and the way we relate to each other because they can't stand people coming together around a shared sense of the truth—it's a huge threat to them.

Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

payment methods

THE TRUTH...

is the first thing despots go after. An unwavering commitment to it is probably what draws you to Mother Jones' journalism. And as we're seeing in the US and the world around, authoritarians seek to poison the discourse and the way we relate to each other because they can't stand people coming together around a shared sense of the truth—it's a huge threat to them.

Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate