As "Main Street America" gets hit by unemployment, the stock market has rallied back
While the nation's unemployment rate has hit the highest level since the Great Depression, the stock market appears to be rebounding. The disconnect between these events is creating further economic inequality in the country, a market analyst said.
About 29 million Americans lost jobs in April and the unemployment rate hit 14.7%, according to the latest report from the Labor Department. Some of the industries that have been hit the hardest include retail, restaurants and transportation, Frances Stacy, the director of portfolio strategy at the financial services firm Optimal Capital, said on CBSN Friday.
"This is hitting the lower 60% of the economy much harder than it's hitting the upper 40% of the economy," Stacy said. "And of course, we have the stock market that's up, and so this coronavirus discrepancy is really much harder on people that already are suffering from our wealth gap."
The stock market has regained some ground after plunging in February and March over the coronavirus crisis.
"We're returning to the price-earnings ratios, which is how stocks are priced, that we had before the market fell, and clearly that's a disconnect from what's happening in Main Street," Stacy said.
She explained that the markets are relying on the Federal Reserve. "The risk that's left in the markets for a Great Depression is credit market risk — if people start having massive bankruptcies, massive default situations," she said. "The Fed — their comment to that is 'we haven't deployed all of our bullets yet, and we're willing to do whatever it takes,' and so the stock market is trading on the fact that the Fed is going to come in and backstop securities."
But it is "actually increasing the wealth gap to have the market up so much and have the lower 60% of our economy not even participating in that market," Stacy said.
More data on how the economy will open back up is needed to know how the markets will change, Stacy said. But, "as far as the recovery for Main Street America, unfortunately, it's going to take years," she said.
