U.S stock market posts best monthly gains since 1987, here’s what moved the markets

In a surprising turn of events, the US stock market witnessed its best monthly return in over 30 years in April, despite more than 20 million people filing for unemployment during the same period. The apparent disparity between the stock market's performance and the real economy has left many puzzled. Sean Markovitz, a strategist in the research and analytics division at Schroders, shed light on this phenomenon during an interview on CNBC Africa. Markovitz highlighted the forward-looking nature of the markets and emphasized that the stock market does not necessarily mirror the actual economic conditions. According to him, historical data suggests a weak relationship between stock market returns and economic growth, leading to the disconnect observed today. Markovitz elucidated that stock markets inherently look ahead, reflecting not only the current situation but also anticipating future profitability. This forward-looking approach allows markets to factor in upcoming developments, hence accounting for the deviation from economic data that is inherently backward-looking. Despite the staggering unemployment numbers and economic turmoil, stock markets already priced in much of the negative news, explaining the surge in stock prices even amidst bleak economic indicators. When questioned about the prospects for rebuilding the world economy and the possibility of a bear market resurgence, Markovitz expressed caution. While acknowledging the vast liquidity injected into the markets and the various stimulus packages, he highlighted the importance of diminishing infection rates or a breakthrough in treatment as critical factors for economic recovery. The potential for a prolonged U-shaped recovery looms large as consumer behavior and business revenues could take time to recover, potentially leading to a resurgence of the bear market. Addressing the distribution of the wealth generated from the surging stock market, Markovitz suggested that a significant portion of the profits might not immediately translate into investments in research, infrastructure, or job creation. With major tech giants like Apple, Microsoft, Amazon, Google, and Facebook leading the market rally, much of the gains have been fueled by the digital shift accelerated by the pandemic. While investors have reaped rewards from this trend, the allocation of these profits to productive sectors remains uncertain. On the topic of big economies like the United States supporting countries like South Africa amid global economic challenges, Markovitz underscored the significance of domestic priorities for each nation. While interdependence exists in global trade, countries are likely to prioritize safeguarding their own economies and jobs first. Despite the interconnected nature of economies, the ultimate focus for nations remains on bolstering domestic growth and stability. In conclusion, the divergence between the stock market performance and economic indicators serves as a stark reminder of the complexities governing financial markets. As investors navigate through uncertain times, understanding the forward-looking nature of markets becomes imperative in comprehending the fluctuations and disconnections witnessed in the current economic landscape.