News & Our Thinking

Argent in the News

Why the stock market and economy are diverging, St. Louis analyst explains

26 May 2020

(St, Louis Business Journal)

May 22,2020 (Greg Edwards)

With the stock market trending up -Wednesday the S&P 500 closed at its highest level since March 6 – and the economy in the tank – jobless claims have topped 38 million – a St. Louis analyst and trader offered an explanation for the divergence.
Ward Brown at Argent Capital Management said there are three main reasons:
  1. “This cannot be overstated: This unprecedented event is being met with unprecedented central bank action the world over,” Brown said. “The Fed just went nuclear. They will do whatever it takes to keep the economy on track.”
  2. “The economy was on much firmer footing than is typical,” he said. Company earnings and sales growth were accelerating, the opposite of what usually happens before an economic downturn, he added.
  3. “There has never been a global health care response on this level,” he said. “I’ve heard it compared to the search for a polio vaccine. The benefit of the doubt is being given to a solution.”

In short, Brown said, “the market is pricing in a rapid recovery, with full support from unprecedented central bank action, again a backdrop of many companies that were in a pretty good spot before the virus hit.”

keep in mind, too, that even in normal times the market and the economy sometimes go their separate ways, “The market is forward looking,” he said, “while the economy is a reflection of what has already occurred.”