Stock market is booming despite crisis at home, why the disconnect?
The stock market is not equivalent to the economy, but rarely have we seen a glaring disconnect between the two. The year 2020, however, is an exception, and American entrepreneur and investor, Anthony “Pomp” Pompliano, explains why in his latest episode of Lunch Money.
America is in turmoil. Just when everyone thought that the year 2020 would be defined by the rise of a deadly pandemic, the unprecedented lockdowns and subsequent crash of the stock market, and loss of millions of jobs across the globe, America was hit by another crippling crisis – the George Floyd protests.
It’s crisis after crisis for America
Today, America is going through one of its worst racism crises since 1968. And while the civil unrest is only expected to aggravate the pandemic spread as protestors and demonstrators flock to streets in massive numbers, defying the social distancing protocols, the US-China relations are deteriorating even further.
However, amid the ongoing protests and unceasing riots, the stock market, surprisingly, seems unperturbed by the news. On Tuesday, the S&P 500 witnessed its highest-ever spike in three months. Furthermore, there was a 40 percent increase in Nasdaq as Big Tech firms are all set to regain strength by striking record-highs again.
According to Morgan Creek Digital co-founder, Anthony Pompliano, there is a more prominent force at play. Following weeks of lockdowns and “house arrests,” the American states are gradually reopening their doors to business, and that’s what’s driving the booming stock market, he said.
Pomp explains why stock market remains detached
Pomp explains that the economy and the stock market took a downturn because the COVID-19 outbreak forced everyone to limit non-essential travel, gathering in groups or stepping out of their homes, unless absolutely essential. Now, all of a sudden, all this has changed as businesses resume their services.
Echoing the sentiments of CNBC’s Jim Cramer, who recently remarked that the stock market shows no empathy or conscience, Pomp added that the market itself has no emotion. It is the people involved in it who have feelings. However, no one thinks about the crisis when investing or trading, he explained.
When an investor or a trader enters the stock market, he or she is speculating about a bright future and placing his money on a much-needed market rebound. At that time, there are no emotions at play. And that’s why we see stocks rebounding.
Pomp furthered that once people see the stock market rallying, FOMO gets into the game, and everyone flocks to the market to buy more and more, pushing the prices even further. Moreover, there is layering in all the federal reserve printing of money – a significant driving force in the market, he explained.
This is primarily the reason why Wall Street is getting rich even when Main Street is fighting two of the most devastating crises of modern times.