The writer is a senior fellow at Harvard Kennedy School
One could be forgiven for wondering if economists and investors in the US are living on the same planet. One cataclysmic economic data point comes after another, yet equity markets grind higher. Last week, when 20.5m jobs were reported lost in the month of April alone, the S&P 500 closed up 1.7 per cent on the day.
Crazy, right? Maybe not. Equity investors make bets on future earnings and many analysts argue soaring stock indices suggest a rapid, V-shaped economic recovery is being priced in. But this explanation is too simplistic. There are good reasons to think robust equity markets are not simply a reflection of investor optimism about the recovery.
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