It’s a classic bull-trap.
Long story short is that the stock market reacts to specific data points and metrics that are not always in touch with the reality of the present. But there is a lag in the reporting of things like 2nd quarter financial results, unemployment numbers, etc etc.
Traders know the long-term risks, but they also know they can make a buck trading the near-term volatility too, so they take positions based on how the market will react in the short-term…not where it is headed next month.
There was a sense at the start of the pandemic that the markets might have oversold, and things started to turn around once the stimulus packages were deployed, and the infection rates were kept relatively in control during lockdowns. There was a thought that we’d see a rapid v-shape recovery as we snap back into normalcy in the summer. That hasn’t panned out.
July and August will be interesting…stimulus money has been long spent, loan forbearance policies, enriched unemployment benefits, and eviction bans will be coming to an end. The narrative of the v-shaped recovery will not play out because the threat of the virus still lingers. Even if we open everything back up, consumer sentiment and habits drive the economy as a whole and businesses cannot function with 50% of their normal sales when they have fixed costs to cover, and variable costs associated with operating when they do open.