A picture has been circulating online which just about sums up the disconnect between financial markets and the real economy.
Financial markets are supposed to be a representation of the real economy. In other words, they rise and fall depending on real macroeconomic factors like company earnings reports, unemployment numbers, and other indicators.
However, many have noticed that there has been a decoupling of financial markets from macroeconomic indicators as of late.
The Picture That Went Viral
On Jim Cramer’s Mad Money show on CNBC, a screencap has been circulating which shows two contradictory messages. On the one hand, the Dow Jones Industrial Average has had its best week since 1938. On the other hand, a record 16M Americans have lost their jobs in three weeks.
The ruling class will never care about you. pic.twitter.com/H8tUQun1Bl
— jordan (@JordanUhl) April 10, 2020
As many have pointed out, financial markets seem to be functioning independently of the greater economy. On March 26, BeInCrypto reported that stocks surged after jobless claims were worse-than-expected. Rather than being reflective of the real economy, financial markets seem to be reflecting the Fed’s activities now. However, it should be noted that similar extreme rebounds in financial markets occurred after the historic crash of 1929, which lost steam as the crisis further took hold.
Economic Prospects Worsen
Two major stories broke earlier this week which showed that international financial bodies were becoming more and more concerned with the economic outlook.
BeInCrypto reported that the World Trade Organization has released its latest report, which estimated that world trade will fall between 13% and 32% in 2020. Another statement by the International Monetary Fund confirmed these fears—its managing director Kristalina Georgieva said that the world is on track to have the worst economic crisis since the 1930s. In fact, 170 of its member countries are expected to experienced negative per capita growth rates this year. In other words, everyday peoples’ incomes are expected to shrink.
The timetable for a potential rebound is also currently unclear. According to Georgieva, a rebound in 2021 is possible only if the pandemic does not rear its ugly head again in the fall. The truth is, we simply don’t know what variables will be at play later on this year.