The stock market is recovering from COVID-19, but is America?

This appeared in The Millennial Source

The end of August saw some positive news for the American financial markets, leading some to claim that the United States might finally be on the road to recovery from the coronavirus pandemic and its subsequent economic fallout.

The Standard & Poor 500-stock index finished out its best August since 1986, setting record highs in trading on the last six days of the month.

But while the financial markets have generally performed well in recent weeks, weekly unemployment claims in the US remain high and pessimism about the future of the economy in general is widespread among the public.

As such, the success of the big three financial markets may be misleading as to the general health of the American economy. They may even showcase a different reality altogether.

Wall Street recovery

Despite the economic onslaught wrought by the coronavirus pandemic in the US, the big three financial markets have enjoyed a positive last few weeks.

The S&P 500, Dow Jones and Nasdaq have all witnessed strong monthly returns for August, helping to erase their losses for the year.

Investors remain confident of a V-shaped recovery for the economy as a whole, with President Donald Trump alleging that a coronavirus vaccine — the key to restoring the economy to normalcy — will be available come November.

Government initiatives have also helped investors. The Federal Reserve has cut interest rates during the crisis, maintained access to credit and allowed investors to take out loans for investments.

Some have also claimed that the markets’ recovery is a window into the future of the US economy. Jurrien Timmer, director of global macro at Fidelity Investments, told CNBC that the stock market starts declining before the wider economy does, but will also “start recovering about four months before the end of a recession.”

By this logic, the stock markets act as a so-called “leading indicator” of the wider economy, helping to both forecast when an economic downturn is arriving or when a recovery is on the cards.