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Animal Spirits

Irrational Exuberance Amidst The Pandemic Makes The Current Stock Market One Of The Riskiest Ever

Not intended to be investment advice. Thoughts and opinions are my own

The current market environment confounds me. The S&P 500 made its low for the year on March 23 2020. From then until now:

• COVID-19 new daily cases increased from a 7-day rolling average of 6,471 a dayto more than 60,000 per day currently (forming a new and higher peak).
• COVID-19 deaths increased from a 7-day rolling average of 67 per day to more than 1,000 per day currently. While the current level is roughly half that of the April peak, it’s been climbing steadily the past few weeks.
• Nominal GDP declined 9% from where it was in Q2 2019 and almost 10% from where it was last quarter (Q1 2020). Both are record declines:

Year over year change in Nominal GDP, (Source: Federal Reserve Bank of St. Louis)

• The unemployment rate climbed from 4.4% to 11.1%.
• The economy is close to experiencing deflation despite record amounts of stimulus and financial support to the unemployed. The next stimulus package is also likely to drop the enhanced weekly employment…