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Stock markets are forward-looking and generally rebound well before economic data turns positive. In the past month, some of the worst economic reports were followed by positive equity market performance.

Investors look past negative news chartDuring the last weeks of March and throughout April, economic data turned decidedly negative as the impact of steps taken to slow the spread of COVID-19 became evident. Initial jobless claims surged to historic highs, consumer sentiment experienced its largest-ever one-month decline, and GDP dropped sharply. The economic picture was unambiguously negative. The magnitude of the decline in some of those reports easily eclipsed anything that would have been expected just a few weeks or months prior. What was the reaction in the equity markets in the trading session following the release of those negative reports? As illustrated above, equities often posted a positive return on the same day that the data released was not only bad, but worse than anticipated.

Clearly, that experience illustrates that day-to-day stock returns don’t move in lockstep with the economy. Instead, equity markets tend to lead the actual economy, as investors look through current conditions in anticipation of what lies ahead. Stocks are inherently volatile, and price movements reflect the effect of a host of macro variables and company-specific news and developments, making day-to-day price movements highly unpredictable. The past month again illustrates that point. Even when the news is bad, it doesn’t guarantee that the markets will react negatively. 

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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