The Bigger the Hit to a Country’s GDP, the Higher the Stock Market Jumps

The US economy shrank by an annual rate of 32.9% between April and June, the sharpest contraction triggered by the coronavirus pandemic since the second world war.

This economic shock in April, May, and June was over three times as sharp as the previous record of 10% in 1958 and about four times the worst quarter during the Great Recession.

“This is something we have never seen before,” said Jason Reed, assistant chair of finance at the University of Notre Dame.

“At first I felt it was like a natural disaster that had hit the entire country at the same time. Now it is evolving into something worse than that.”

The record-settling fall in the gross domestic product, the broadest measure of economic activity compared to the same time last year after for the second week in a row following a four-month decline 1.43 million Americans filed for unemployment benefits last week.

Economists expect the economy to recover sharply later this year, but the recent rise in infections across the US is clouding that outlook.

Interestingly, during this time, the S&P 500 jumped 24% thanks to all the money printing the Federal Reserve did. After the initial $3 trillion stimulus package, another trillion-dollar aid is expected soon. For now, Congress is struggling to strike a deal on the new round of financial support.

On Wednesday, the Fed said the US economy is facing significant challenges from the coronavirus pandemic and vowed to continue to take aggressive action to support the economy to recovery.

The US’s GDP report came as Germany, Europe’s largest economy, recorded a slump in economic growth, contracting by 10.1% in Q2, the most significant decline since 1970, while its stock market DAX jumped 28%.

The fall in GDP came as parts of the US economy shut down in an attempt to halt the spread of coronavirus across the country. The closures led to a historic number of layoffs that sent unemployment soaring to levels not seen since the 1930s Great Depression.

Now, as the first month of the third quarter comes to an end, the S&P 500 jumped 3.6% in July. But it was precious metals that stole the show.

Gold jumped 10.6% this month and broke the 2011 record to hit a new all-time high in Q2. This has been in part due to a 1.6% decline in the US dollar index, which further hit over two-year low with a 4% decrease in July.

Meanwhile, bitcoin the ‘digital gold’ woke from the slumber just last week and spiked 23.6% in July, after a 68% jump in Q2, now trading above $11,300.

“Gold, Silver, Bitcoin all hitting, or going, to new ATH,” said Max Keiser adding the bad news is all of this is because,

“global central banks are staging a debt-for-equity coup disenfranchising 7.6 billion people who will be left for dead unless they have some Gold, Silver, Bitcoin.”

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Author: AnTy

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