Don’t be fooled when the stock market rises: it doesn't always align with reality

The first thing to remember is that you would be hard-pressed to find a major economic measure that correlates with its performance. When the coronavirus hit, stock markets around the world sank as fast as they ever have. That at least makes sense to people: the economy is about to shut down so you would expect the value of companies’ stocks to fall. The S&P500 was down just 5% on the pre-virus peaks, and the technology based Nasdaq Index had not only recovered all the losses of February and March it was breaking records. The underutilisation rate in April was 1.8 percentage points higher than the previous record set during the 1990s recession. We remain in a state where large sections of our economy – especially the education and tourism sectors – face precarious futures given ructions with China. And we have a government desperate to wind back stimulus measures and declare victory. But while reality and the stock market may at time stop conversing, the estrangement can only go on for so long.