But if you’re lucky enough to have a 401(k), you may also have been shocked to see your bottom line grow. Maybe a lot.
Our email conversation is below.
Pandemic? What pandemic?
WHAT MATTERS: I’ve read in your reporting and elsewhere that the stock market is not the economy. But this year, the two seem to be completely out of whack. What’s happening?
EGAN: Looking at the stock market’s 2020 performance, you’d never know there was a once-in-a-century pandemic. The S&P 500 is up 13% on the year. The Nasdaq is on fire, up 37%!
In a nutshell, investors are sniffing out a recovery long before it’s felt on Main Street. Wall Street is looking past the intensifying pandemic, and weakening economy, and focusing on six months out. And there’s growing confidence that highly effective vaccines will let the economy bounce back during the second half of 2021.
The Fed and Congress acted fast and kick-started recovery in the spring
WHAT MATTERS: The market dropped steeply after the 2008 financial crisis. Why has it not been affected by an even more distressing pandemic?
EGAN: Just like during the Great Recession, the pandemic did rock the stock market. At its low point in March, the S&P 500 was down 31% on the year. But the rebound was lightning fast, in part because the economic downturn didn’t last as long. The economy was growing, rapidly, by the summer. The V-shaped recovery on Wall Street was also driven by emergency actions by the Federal Reserve and Congress that prevented this health crisis from morphing into a full-blown financial meltdown.
The corporate economy can survive what kills your neighborhood economy
WHAT MATTERS: I’m in the market with a 401(k) and I honestly know very little about what is actually in there. How should people like me view what’s going on with the market vs. the economy?
EGAN: It’s so important to remember that the S&P 500 represents the fortunes of corporate America, not Main Street. It’s made up of some of the nation’s largest companies, ones that have the financial firepower to ride out the storm. That means the stock market can go up even while mom-and-pop shops like restaurants are going dark at an unprecedented pace. It’s a different universe, for better or worse.
The biggest market winners in 2020 are the companies that actually benefited from the disruption set off by the pandemic. Think: Amazon, Zoom, Peloton, Moderna and Chewy. Companies most exposed to the real economy — industrials, energy, banks — have lagged behind….
Go to the news source: US economy: Why the stock market feels immune to the pandemic