In recent days, more and more people have been saying “seriously, what’s happening with the stock market?” as the levels of major equity indexes just don’t seem to align with the devastation  of the real economy. It really is astonishing: the S&P500 is off just 11.2% this year. The NASDAQ is down just 1.8%! In answering the question of what is happening, in no particular order:

1. The Fed has intervened in a massive way in credit markets to forestall a run on the corporate sector. This hasn’t prevented every bankruptcy, but the aggressive action, and the implication that it could do more if conditions warrant it, removes some tail risk from the system.

2. Fiscal policy has been in some sense impressive. In a note that came out on Sunday evening, Goldman’s top economist, Jan Hatzius, wrote that “disposable personal income is likely to register slightly positive growth for this year”, because the unemployment insurance expansion has been so robust. Hatzius believes that the government will ply workers with enough support to actually grow disposable personal income. His prediction is predicated on the passage of a phase 4, so that is not a done deal yet, but still.

3. Technology. Note the above statistics regarding the S&P500 and the NASDAQ. It just so happens that this particular crisis has not been particularly disruptive to the larger Tech companies, and in some cases, their models are absolutely booming (Amazon). Of course, large tech companies already accounted for a huge share of the S&P market cap, going into the crisis. The results have flattered total index returns. However, looking at other sectors (energy, airlines,hotels, real estate etc.) the carnage is far deeper, with returns in some cases worse than -60%.

4. Let’s think about the implications if they pull it off. Imagine, for a second, that between the Fed and the barely functional Congress, that policymakers actually can prevent this shock from turning into a prolonged depression. That would be an incredible demonstration of their ability to slay the beast, and arguably would justify even higher multiples.

5. Finally, whilst the virus curve in the US is depressingly stubborn, there is more optimism about the vaccine coming sooner rather than later, at least compared to expectations  from two months ago.