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2020/06/17
Market Insight by Fadi Barakat - The disconnect between the real economy and financial markets

It seems counterintuitive to be buying financial assets while jobless rates are going up across the globe, yet at the time of writing the S&P 500 surpassed the 3,000 mark. We find ourselves wondering if current levels are justified, will it go on, and just how exactly did we get here?

No asset class was spared in the recent market correction and the world was coming to a “sudden stop”, a term used to describe the abrupt reduction of capital flows into a nation's economy, often accompanied by economic recession and market corrections.

Keynes and Friedman working together

Governments in developed countries have been quick to react; several Covid-related assistance programs have been put in place to help absorb the financial impact of the crisis. In the US, the economic relief package of over $2 trillion introduced by President Trump on 27 March helps to protect the American people from the public health and economic impacts of Covid-19. Similarly, European leaders have agreed to supporting jobs, businesses and the economy at an EU level, and on 23 April, endorsed a €540 billion package of three safety nets for workers, businesses and member states. 

In parallel, over a period of six weeks central banks provided liquidity in extraordinary amounts, buying government bonds, corporate debt, MBS and ETFs.
With the exceptional support coming from both monetary and fiscal policy, it is no surprise to see markets rebounding to current levels, or is it? 

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