Why is the stock market going up when the economy is in trouble?
If you’re an investor, this question has likely been on your mind. After all, we’re in the middle of the scariest pandemic in a century. Some businesses are barely scraping by, while millions of unemployed Americans have relied on enhanced government programs to stay afloat – yet the markets are hitting new highs.
To understand the disconnect between the markets and the economy, it’s helpful to understand what defines the U.S. economic system and the stock market.
The economy is the system under which money, industry and commerce are organized. Economic health is measured by employment and production growth. The system in the U.S. is considered capitalistic, driven by supply and demand, with a mix of government involvement and socialist-type policies such as Social Security and Medicare.
The stock market refers to a public marketplace in which