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Many physicians, like investors across the country, are asking this important question:

How do we reconcile the recent equity market gains, particularly in the United States, with the poor state of the current economy and the weak outlook?

This chart, as an example, shows how the S&P 500 stock market index rose sharply from its March lows through late May, despite unemployment hitting levels not seen since the 1930s and the Great Depression. There is no single answer to the title question. In fact, there are several factors, both in terms of the market itself and how investors have behaved during the period, that have contributed to the recent rise of the U.S. stock market (as of early June).

stock market and unemployment
  1. The Market is Forward-Looking

First and foremost, it is important to recognize that financial markets are forward-looking. Current pricing is based on expectations of the future. Markets are always incorporating new information and comparing it to current expectations. Investors are asking: Am I surprised by today’s news? Are things getting better than what I expected yesterday? Are they getting worse? Or are they about what I expected?

For example, hearing that 21 million people became unemployed in April (a month-over-month spike never seen before in U.S. history) and that the unemployment rate rose to 15% was terrible news. But however dreadful this sounded, it was already widely expected. Thus, the stock market did not sell off, as it had already factored in this news in advance. It wasn’t a negative surprise.

  1. Don’t Fight the Fed

The market was also very encouraged by the government’s fiscal and monetary policy response to support the economy and financial markets while much of the economy was shut down. One lesson learned from the 2008 global financial crisis is that a policy response needs to be significant and executed quickly. Governments need to make a credible commitment to “do whatever it takes” to support the economy and prevent a negative spiral from taking hold. The Federal Reserve supported the fluid functioning of credit, lending, and financial markets, and their critical role as the “plumbing” of the real economy. At the same time, governments around the globe understand something massive needed to be done quickly on the fiscal policy side. On March 27, Congress passed, and the president signed into law, a $2 trillion stimulus package. Discussions continue about additional steps to take in support of markets and the economy.

  1. Cap-Weight Indices Skew Overall Market Performance Numbers

The S&P 500 index is the most popular measurement of the entire U.S stock market – as it is much broader than the Dow (which includes only 30 stocks) or the NASDAQ (which is technology-heavy).  Yet, the S&P 500 index is cap-weighted, meaning the companies with a higher market capitalization carry a higher weighting percentage in the index.  Since the COVID-19 crisis, this weighting has had a significant impact on the market’s performance, as the FAAMG stocks (Facebook, Apple, Amazon, Microsoft and Google/Alphabet) have significantly outperformed their peers in the index.  This performance gets amplified by the overweighting, as these six companies represent a little over 1% of the companies in the index, yet they comprise nearly 20%XX% of the cap-weighted performance of the index.  In other words, a few mammoth companies have carried much of the other 500 firms in keeping the index from moving more negatively.

  1. In general, large public companies may benefit from the COVID-19 crisis at the expense of small private firms.

Large U.S. stocks benefit from the fact that big companies are often the beneficiaries of small companies struggling or going out of business. As an example, if local restaurants go out of business because of the COVID-19 shutdowns, large publicly traded companies like Chipotle and McDonalds may benefit. The same can be said for small local retail businesses struggling while the likes of Amazon, Wal-Mart, and Costco all gain. The current conditions hurt small and overseas companies far worse than they affect big U.S. companies and the market may reflect that.

  1. TINA (There is No Alternative)

The first investor behavior element affecting market performance is the TINA factor. With interest rates near zero, asset classes like cash, treasuries, money markets and even bonds become less attractive.  This may be keeping many investors who are not optimistic about the economy from selling stocks as they do not see an alternative that can give them any upside appreciation.  If physician investors don’t see a viable alternative, they may simply hold their allocations to stocks steady, which will buoy the market against losses.

  1. Retail Investors, in fact, did not sell even during the March historic downturn

Whether due to the TINA factor above, or for other reasons, we now have data on how retail investors reacted to the sharp market downturn in March—and, it turns out, they did not sell.  In a study of their 9.4 million accounts from Feb 24 through late March, Empower Retirement found that 9.3% of their customers made no change to their retirement investments.[1]  This behavior was confirmed in studies of investors at Vanguard and Fidelity in the similar time period.  In fact, “Vanguard told Yahoo Finance that its clients have ‘overwhelmingly stayed the course,’ with just 10.7% of U.S. households trading between Feb. 19 and April 17.”[2]


  1. Many Americans who have lost their jobs do not own much of the market

This last factor is the unfortunate evidence of the wealth inequality in the United States.  The simple fact is that  the wealthiest 10% of our citizens own 84% of the stock market.[3]  When you combine that with the fact that the COVID-19 crisis has not created nearly as much unemployment and financial stress for those in the top 10% as it has for the rest of the nation, it becomes clear that selling pressure on the market has not come to pass. While such pressure may be the case for many Americans, it may have little impact on the overall stock market if it does not impact the top 10%.


This article outlines some of the reasons why the stock market has moved positively over the last two months, despite discouraging economic news.  It remains important to have a diversified portfolio with strong companies and sectors, as well as assets that will protect your portfolio during market pullbacks. Now, more than ever, guidance from a professional investment advisor can help you navigate market volatility and achieve your long-term financial goals.