markets

The Unemployment Rate Is 15 Percent. Here’s Why the Stock Market Doesn’t Mind.

No society, no jobs, no problem! Photo: Getty Images

Nearly one in five American workers have lost their jobs since mid-March. The official unemployment rate in the United States is now 14.7 percentthe highest since the Great Depression — according to Friday’s jobs report. And that figure does not account for the past two weeks of historic job losses; the actual rate is likely closer to 20 percent by now. All across the country, small businesses are folding, while others are taking on onerous debts to survive. Although some parts of the country are relaxing stay-at-home orders and social-distancing guidelines, the coronavirus pandemic remains uncontained. Absent the sudden emergence of a robust testing-and-tracing regime, or effective COVID-19 treatment, or a coronavirus vaccine, the “reopening of the economy” is likely to produce a new wave of infections — and thus, a durable dearth of consumer demand for in-person business and services.

And markets are rallying. On Thursday, the tech-heavy NASDAQ Index turned positive on the year, while Dow futures jumped more than 250 points following the Labor Department’s report Friday morning. That was just the latest bout of optimism in a bullish stock market run that has taken the S&P 500 up roughly 29 percent since March 23 when investors seemed to be deeply spooked by the very reality that’s now playing out before our eyes: mass unemployment, a shrinking economy, and tens of millions of Americans — the people Wall Street refers to as “consumers” — facing a dire financial outlook.

The rally in equities over the past few weeks has had plenty of detractors. Bears insist that investors are deluding themselves about the plausibility of a “V-shaped recovery,” and/or the insulation of major firms from the consequences of mass bankruptcies. And yet, a growing number of Wall Street investors and analysts have made peace with the dissonance between the markets’ fortunes and their own. In their view, capitalists haven’t lost touch with reality — equity values simply no longer depend on the functioning of society.

The bulls’ case goes roughly like this: For years now, America’s corporate sector has been preparing for an economy fueled by the consumption of white-collar shut-ins, the labor of disempowered service workers, and the human-proofing of various industrial processes — without quite realizing that it was doing so.

Long before the pandemic hit, e-commerce was displacing retail, robots were replacing warehouse workers, and an erosion of labor’s bargaining power was putting downward pressure on service-sector wages. Thus, the companies most immune from the shuttering of public space and, to a lesser extent, from declining working-class purchasing power — capital-intensive technology firms — were already laying claim to an outsize share of the S&P 500 before the coronavirus hit our shores. As Bloomberg reports:

[B]usinesses reliant on public contact have been casualties of tech innovation for decades, it’s nothing new … Unsurprisingly, amid a crisis bent on keeping everyone at home, bets are coalescing around companies that ease the burden of being locked indoors.


“A lot of the productivity investments that companies made over time have allowed the absorption of this shock of the elimination of a tremendous amount of face-to-face work,” said Joseph Fuller, professor of management practice at Harvard Business School … Take Walmart Inc., for example. Back in 1980, the big-box retailer’s warehouses would have been packed with more people per square foot, with less automation running the operations than now, according to Fuller. Just a few months ago, the nation’s biggest grocer unveiled a robot-run warehouse to increase efficiency and compete with Amazon …


… “[I]f you zero in on the companies most negatively affected by the virus, including airlines and leisure stocks, they only make up 10 to 20% of the S&P 500, according to Jack Janasiewicz, a portfolio strategist at Natixis Investment Managers, which oversees $1 trillion.


“The eye opener is when you look at the ones you are worried about. It’s not a big chunk of the S&P 500. It’s the old adage where the market isn’t the economy,” he said. “That really hits an important piece here. A lot of the stuff we’re worried about, it’s just not a big chunk of the S&P 500, so maybe we did overreact by selling off 35%.”

These are tough times for businesses that require lots of human beings to labor in tight-knit and/or public spaces in order to function (the meat-packing sector is in poor health). But the digitalization of retail and automation of warehouses have reduced the number of firms that depend on people working in densely-packed “meatspace.” And COVID-19 can’t be contracted via computer virus. Meanwhile, advances in software are helping industries that have heretofore relied on epidemiologically hazardous and economically inefficient in-person interactions transition to the web.

“It’s a whole different way of practicing medicine,” former IBM CEO Sam Palmisano said of the burgeoning deployment of telehealth services during the pandemic on Bloomberg Television last week. “People will get used to that, and if you have the option of not going to the doctor’s office and waiting in the reception area for, as you know, a very long time sometimes because things happen, that could be attractive to you.”

The market isn’t the economy. Capitalists don’t need it to be safe for you to leave your house — or possible for 30 million unemployed Americans to find jobs — in order to make healthy profits. The next industrial revolution will be livestreamed. Come on in, the S&P 500’s fine.

As already mentioned, not everyone on Wall Street has imbibed this (dystopian brand of) techno-optimism. Capitalism may be reducing its dependence on workers, but it still needs consumers. And consumers need jobs, or else more generous and extensive income support than Congress is prepared to provide. Meanwhile, if investors are less dependent on a functioning society than one might have imagined before COVID-19, their dependence on a functioning federal state has never been more apparent or acute: There is no market rally without the past two months of manic central-bank interventions, and there is no Federal Reserve without the U.S. government.

BlackRock CEO Larry Fink thinks these dependencies will ensure that the coronavirus recession’s woes will eventually trickle up. On a private call with clients of a wealth advisory firm, Fink reportedly warned that a “cascade of bankruptcies” is about to hit the U.S. That is probably less of a prediction than it is a disclosure, given BlackRock’s centrality to the American political economy (Fink’s firm is managing multiple Federal Reserve’s bond-buying programs). Fink further said that as the leisure and hospitality sectors crater, pressure will grow on Congress to launch evermore sweeping rescue efforts of major firms and small businesses — and that will lead Washington to raise the corporate tax rate from 21 percent back up to 28 or 29 percent in the near future. Meanwhile, the pandemic will leave a durable imprint on the American consumer’s psyche, causing a long-term reduction in travel and the use of public transport. Taken together, Fink’s prophecies suggest that Wall Street’s worst days of the COVID-19 crisis may still be ahead of it.

All of which is to say: If you’re hoping to see strong medium-term growth in your 401(k), pray that our Wall Street overlords have secured enough independence from society — and dominance over the U.S. government — to immunize themselves against the bad times to come.