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U.S. stock market erases 2020 losses, coronavirus might not be spread by asymptomatic carriers, and Congress wants to crack down on the police.

Round Trip 

The round trip has been completed. The fastest stock market collapse on record has been followed by one of the fastest recoveries ever, powered by unprecedented amounts of stimulus injected into financial markets and the economy, from both the Federal Reserve and Congress. The S&P 500 closed in the green yesterday, the day record-keepers declared the U.S. is in recession, and made whole anyone who has held stocks all year. Only one goal is left for the main benchmark for American equities: its record high from before the pandemic hit.

Corona Conundrum

Asymptomatic transmission of the novel coronavirus is "very rare," the World Health Organization advised, raising questions about the rationale of confining populations at home and bringing the global economy to a halt. Detailed reports of contact tracing from various countries showed that people who don't have symptoms seldom spread it, according to Maria Van Kerkhove, head of WHO's emerging diseases and zoonosis unit.

If proven correct, the development could have a major impact on how quickly governments reverse lockdowns, social distancing and travel restrictions. The WHO findings contradict those published in the journal Nature which said the draconian measures may have prevented about half a billion coronavirus infections in six countries, including China and the U.S. The virus has now caused some 7 million reported cases of Covid-19, with more than 400,000 fatalities. 

Policing the Police

Congress is taking up the cause of police brutality with bills to make it more easy to punish cases of misconduct. An effort from congressional Democrats led by House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer is set to be heard on June 30 when the full House is scheduled to return, although lawmakers could come back sooner if the bill is ready for vote. The proposal didn't sit well with the White House, which rejected a central provision. The president said he will discuss ideas for revamping police tactics without offering details.

Meanwhile, House Republicans led by the Judiciary Committee's top GOP member Jim Jordan are working on their own policing bill and aim to release it this week, said a Republican aide. The death of George Floyd at the hands of Minneapolis police has sparked weeks of protest and calls to make law enforcers more accountable.

Markets mixed

The buoyant mood fizzled overnight as investors worried that global equity markets have run too far, too fast. Oil dropped below $38 a barrel in New York as the rally paused. The MSCI Asia Pacific Index added 0.5% while Japan's Topix index closed little changed. In Europe, the Stoxx 600 Index was down 1.3% by 6:05 a.m. Eastern Time. S&P 500 futures pointed to a drop of 1% at the open and the 10-year Treasury yield was at 0.829%.

Coming up...

A quiet day for economic data will see the start of the Federal Reserve meeting, with JPMorgan Chase & Co. and TD Securities recommending five-year Treasuries on the central bank's signal of prolonged support. Wholesale inventories data and JOLTS job openings both for April are due at 10 a.m.

What we've been reading

This is what's caught our eye over the weekend.

  • A dollar crash is coming.
  • China tries to have it both ways with virus recovery.
  • As many as 25,000 U.S. stores may close in 2020.
  • Some good news about the climate for a change.
  • Amsterdam to clean up sex-and-drugs tourism.
  • New York's comeback will be America's comeback.
  • What a slave trader's statue says about Britain.

And finally, here's what Joe's interested in this morning

With the S&P 500 having erased its losses for the year yesterday, people keep saying that the stock market has no connection to the real economy anymore. This isn't true though. The connection is that as the economy has gotten better, stocks have gone up. You can see this clearly looking at a chart of the S&P 500 (white line) vs. initial jobless claims (red line). The stock market bottomed right as the pace of layoffs hit their most intense level, and has been rebounding alongside an ongoing decline in weekly job losses.

This is not unusual at all. Let's go back to 2009. The stock market bottomed in early March of that year, just a couple of weeks apart from the peak in initial jobless claims.

This relationship between the stock market and the real economy isn't limited to just huge turning points. Here's a chart of initial claims vs. the stock market between 2009 and 2019. Stocks steadily rose throughout that decade, while the pace of layoffs steadily fell.

So it's pretty clear that now, just like through much of the last decade, and during the last crisis, stocks went up when real economic conditions started to improve. And it's not just claims. If you look at credit card data, you can see that consumer spending has been rising really impressively ever since late March. The reason the stock market is so much better since late March is that the real economy is.

Of course, things could easily backslide in the real economy in a million ways that I've been talking about a lot (a fiscal policy mistake, a plateau in the services recovery, layoffs that extend to higher paid workers and so on). And that could slam stocks. But for now, the link between the market and real activity is pretty straightforward.

Joe Weisenthal is an editor at Bloomberg. 

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