The divergence between the flying stock market and the dying economy is so extreme it is leaving many analysts scrambling for explanations.
The recent string of economic data releases reflecting life under global coronavirus lockdowns has been even grimmer than expected, spurring the IMF this week to forecast the biggest global recession since the 1930s' Great Depression.
Some investors are in awe at the scale of the shock. "We really are in uncharted territory," said Liz Ann Sonders, chief investment strategist at Charles Schwab. "We have a monster mash-up of the Great Depression in size, the crash of 1987 in speed, and 9-11 attack in terms of fear."
And yet, stock markets have been on a tear for a month.
What was once dismissed as a mere "bear market rally" — often strong but ultimately doomed bounces that can occur in the middle of severe downturns — has now turned into a 23 per cent jump for global stocks.
Technically, that qualifies as a new bull market.
The rise has erased half the stock market's fall since late February, and brought the FTSE All-World index back to levels seen in the US tax cut-fuelled summer rally of 2017. Analysts and investors say that global efforts by central banks to soothe the financial system have been the trigger.
Citigroup estimates that the biggest central banks will buy $5tn of bonds this year, led by the US Federal Reserve, which is more than twice the size of the stimulus seen at the peak of the 2008-09 financial crisis. The Fed has even charged into areas once thought untouchable for central banks, announcing plans to support corporate debt graded "junk" by credit rating agencies.
Throw in various other liquidity injections and a series of government spending packages aimed at ameliorating the effects of measures taken to contain the coronavirus outbreak, and the overall stimulus bill comes to $14tn, according to the IMF.
"The Fed has been very clear that it will do whatever it takes," said Joyce Chang, chair of global research at JPMorgan. "The question is whether this will be enough."
Many investors seem to think so. Technology stocks are once again leading the rally, but even travel and leisure stocks have jumped 24 per cent from the lows, trimming their decline this year to 37 per cent. Investors appear to be writing off 2020, focusing instead on the prospects for an economic normalisation in 2021, analysts say.
Some of the technical forces that fuelled the sell-off are also helping stoke the comeback. Hedging by banks, trading strategies that automatically buy when volatility simmers down, and thinner liquidity are all now supporting the rally, according to JPMorgan.
History also offers some encouragement to the optimists. Bespoke Investment Group crunched the numbers on every big US stock market slump, and found that once equities had clawed back over half their losses, that had tended to signal that the lows would not be retested.
One notable exception, however, was after the crash of 1929 and the Great Depression. The US stock market rallied over 44 per cent from the November 1929 low through to March 1930 before sliding another 80 per cent, and did not reclaim its 1929 highs until September 1954.
Some investors think this is a plausible scenario now. Paul Singer, the head of Elliott Management, warned that stocks could easily renew their slide and drop by half from the February peak.
"Despite the massive stimulus moves around the world and the unimaginably large new rounds of money printing, there is substantial uncertainty about the future viability of a large range of businesses," Mr Singer wrote, in a recent letter to clients. "To us there does not appear to be a gilded cornucopia of shining bargains."
Some nervousness began to creep back into markets this week, triggered by ructions in the oil market crowned by the unprecedented sight of the benchmark US crude price sliding below zero on Monday. Although partly a technical dislocation, it underscored the fragile state of the global economy.
Meanwhile, the first-quarter corporate earnings season has started to reveal the extent of the revenue destruction hitting many companies. And such grim results may pale next to what is likely to be a "horrific" second quarter, warns Karen Ward, a strategist at JPMorgan Asset Management.
The message was hammered home by data released on Thursday showing another 4.4m Americans claiming unemployment benefits, taking the total since mid-March to over 26m. A potential antiviral drug for coronavirus failed its first randomised clinical trial, further denting sentiment.
Ms Sonders points out that even if equities do not plunge below the lows of March, economic downturns of this magnitude tend to produce a lot of head-fake rallies and stomach-churning sell-offs.
"Anyone who thinks we're going to keep moving up in a straight line is living in la-la land," she warned.
- Additional reporting by Katie Martin.
Written by: Robin Wigglesworth
© Financial Times 2020