The global economy is set to bottom this quarter. For the financial markets, COVID-19 already seems to be a distant memory. What's the disconnect?
US risk assets have rallied since March, even though the contraction in economic activity in the second quarter is likely to be more extreme than in the first. A number of factors can explain the seeming disconnect between the performance of risk assets and the real economy. For instance, monetary policy supports financial markets but less so the real economy. Also unlike economic indicators, financial markets are forward-looking. And last but not least, the composition of the US stock market and economy differ greatly.
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