All that said, the stock market has had quite a good few weeks. The S&P 500 is now higher than it was at its prior intra-crisis peak on June 8, and higher than it was at the start of the year. How could that be? Are the markets being irrational? Financial markets can always be wrong, but I don’t think the buoyant stock market and the stalled economy are necessarily in contradiction. Here, some good explanations for why stocks would appear to shrug off the very serious economic problems the virus has caused this summer.

First, stock prices are supposed to reflect market expectations of the future profits of corporations. I don’t love the phrase “the stock market is not the economy,” because stock prices can be an important economic indicator and shouldn’t be brushed off. But it’s definitely the case that the stock market reflects expectations about only a portion of the economy, and that it reflects expectations. There has been news in recent weeks that gives us good reason to believe companies will be less profitable this year than we would have thought a few weeks ago. But there has also been news about medical research developments that provides reason to believe companies will be more profitable in future years than we might have expected a few weeks ago. Investors have increasing reason to believe we will see widespread distribution of one or more vaccines by, say, mid-2021. That’s a positive development for the long-term outlook for the economy and for corporate profits, and so it should push stocks up, or at least offset the downward push from the bad nearer-term news. But you wouldn’t expect that good news about the future to show up in the current job creation or consumer-spending data.