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The Disconnect Between Recent Market Rallies and the COVID-19 Outbreak

Aaron Levitt May 22, 2020

The market is often called a weighing machine. That is, traders and participants simply look at the current/near-term picture and weigh the potential outcomes accordingly. It’s the reason why bad news often creates a period of volatility and sends the major indexes into a tizzy.

You can argue that the coronavirus pandemic qualifies as bad news. As the stay in place orders, work from home, and other conditions have been in effect, the world’s economy has quickly started to stall. Data points to a rough recession, with metrics across employment, housing, consumer spending, and manufacturing all falling to lows not seen since the Great Recession. Commodities have crashed and deflation is now a big worry.

But you wouldn’t notice this was so bad based on the market’s reaction. Since the pandemic has started, stocks have bounced back quite well.

Why is there such a huge disconnect and should investors heed some of the warnings about the complacency?

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