The gulf between a buoyant Wall Street and withering Main Street, which has perplexed many investors for more than a month, was widened further on Friday by a rally in stocks despite the biggest decline in US payrolls on record. The benchmark S&P 500 index climbed 1.7 percent, back to levels last seen in September, months before coronavirus infections had first been identified. The technology-heavy Nasdaq Composite, which was up 1.6 percent, had already erased its losses for this year and is within striking distance of its all-time high. The two indices ended the week up 3.5 percent and 6 percent, respectively.
Those gains came in the week government data confirmed more than 20m Americans were cut from payrolls last month and household names in the retail sector filed for bankruptcy. “Stocks have decoupled from the economy,” Kristina Hooper, chief global market strategist at Invesco, said. Investors have pointed repeatedly to one force that has driven global asset prices higher: swift actions from the Federal Reserve, the European Central Bank and the Bank of Japan. It has been enough, at least for now, to outweigh the economic toll since business activity in the developed world ground to a halt. “The Fed has really altered the landscape for capital markets,” Ms Hooper said. “By providing such extraordinary and somewhat experimental monetary policy, it has altered risk and reward profiles for asset classes.”
The Fed alone has snapped up roughly $1.5tn of Treasuries over the past two months, having committed to buying an unlimited quantity of government securities. Beyond its historic asset purchase programs and slashing interest rates close to zero, the US central bank has also rolled out emergency measures to shore up the markets for commercial paper, municipal debt and corporate credit, among others.