Together, these data points have been enough to create an outlook that, while not exactly rosy, is at least no longer pallid. At the same time, the improvements are hardly so significant that they would prompt the Federal Reserve to pull back its support for the economy. The Fed has started new programs to buy Treasury bonds and other financial assets to calm investors, and is financing those programs by essentially creating new money.
“It seems to me that markets have decided this economic environment is the best of both worlds: enough economic recovery to support corporate earnings and prevent a substantial recession, but not so much that the Fed would have to raise interest rates and tighten monetary policy,” said Scott Clemons, chief investment strategist for private banking at Brown Brothers Harriman, an investment bank.
Several times in recent days, the S&P 500 had crisscrossed its Feb. 19 closing high of 3386.15 in intraday trading, before falling below that level to end the trading day. But on Tuesday, the blue chip index notched a modest gain of 0.2 percent, to close at 3,389.78, after another solid performance by major technology companies. Amazon.com rose 4.1 percent, pulling the Nasdaq composite index to a fresh record as well. The Dow Jones industrial average slipped 0.2 percent.
Tuesday’s rise was the latest chapter in remarkable rebound for the stock market following a nearly 34 percent collapse in February and March. It was the fastest ever nosedive of more than 30 percent from a peak, reflecting the depths of panic as investors began to consider the economic costs of the pandemic. Those fears were warranted. Since March, the economy has suffered the sharpest collapse since the Great Depression. An estimated 28 million Americans are receiving unemployment benefits. The economy has been almost decimated, as G.D.P. shrank nearly 10 percent during the second quarter of the year, wiping out nearly five years of economic growth.
After that initial steep decline, however, the stock market began to recover and has done so steadily since, in a marked display of what analysts describe, by turns, as optimism, hubris or sheer speculative greed that is heavily reliant on federal spending, easy monetary policy and continued signs of progress in the hunt for virus vaccines. The result has been a remarkable rally of more than 50 percent that has underscored the dissonance that sometimes exists between the markets and the economy.