Why the Stock Market Is Soaring Even As the Economy Falters

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The economy looks rough. The stock market doesn’t. jbarro writes on why that may make sense

Photo: Johannes Eisele/AFP via Getty Images As I wrote on Monday, the near-term economic picture looks a fair amount worse now than it did a few weeks ago. What had been a rapid recovery in economic activity has turned into a stall, because a rise in COVID cases across the South and Southwest has caused states to freeze or reverse their economic reopenings and has made consumers more cautious about their behavior, even in less affected regions like the Northeast.

First, stock prices are supposed to reflect market expectations of the future profits of corporations. I don’t love the phrase “the stock market is not the economy,” because stock prices can be an important economic indicator and shouldn’t be brushed off. But it’s definitely the case that the stock market reflects expectations about only a portion of the economy, and that it reflects expectations.

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jbarro That’s easy, under Dodd-Frank the Federal Reserve can dump as much money into the markets to support them as needed without going to congress for further authorization. Trillions of dollars. There’s no “Free Market” supporting the markets, just free money.

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