"The world is ending and the stock market is going up. How?"
We read about new COVID-19 cases and related deaths every day, worldwide and now here at home. Unemployment has skyrocketed and it appears that we're quite literally putting our economy into a recession. We've been cooped up in our homes for a month, unable to see friends/family or go out to our local stores, bars, and restaurants. And no one knows when it will end, which may be the worst part.
In times like these, some may wonder how the stock market isn't down even more. And while the market has declined significantly this year, we've also seen some big up days, including this week.
How can this be? As bad news continues to flood our inboxes and news outlets?
It's important to remember that the stock market is forward-looking. This means that the market has likely already priced in the world we have today (remember that fastest ever -30% decline in February/March?) and instead is trading on expectations of how things will be in the future, potentially looking to 2021 and beyond.
This fascinating chart below comes from our partners at LPL Research and Senior Market Strategist Ryan Detrick, detailing when the stock market bottom occurred in each of the 12 U.S. recessions since World War II.
The takeaway: The S&P 500 bottomed on average 5 months before the respective recession ended.
Have we seen a market bottom? We don't know for sure, and some are saying this market may re-test the lows we saw in March.
But what we do know is that the stock market tends to lead, as shown above. Although the current situation may be grim, the market can point to better days ahead.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.