You had to do mean, variance and skew, Paul

Crashing Economy, Rising Stocks: What’s Going On? 

What’s bad for America is sometimes good for the market.

What, after all, is the main alternative to investing in stocks? Buying bonds. Yet these days bonds offer incredibly low returns. The interest rate on 10-year U.S. government bonds is only 0.6 percent, down from more than 3 percent in late 2018. If you want bonds that are protected against future inflation, their yield is minus half a percent.

So buying stock in companies that are still profitable despite the Covid-19 recession looks pretty attractive.

And why are interest rates so low? Because the bond market expects the economy to be depressed for years to come, and believes that the Federal Reserve will continue pursuing easy-money policies for the foreseeable future. As I said, there’s a sense in which stocks are strong precisely because the real economy is weak.
Now, one question you might ask is why, if economic weakness is if anything good for stocks, the market briefly plunged earlier this year. The answer is that for a few weeks in March the world teetered on the edge of a 2008-type financial crisis, which caused investors to flee everything with the slightest hint of risk.

Not only did the price weighted stock index rise, on panic bond buying, but it also shifted left and got a narrower spread. Fewer large companies are getting the dough, mainly because large companies make the longer term bets.

But the central question is, the large corporates get more liquidity, who loses it since liquidity cannot be conjured? Sales taxes way down, the bread and butter of local municipalities.  Large banks got bigger, we are shutting down retail banking, the fees to high.

So the market is telling us something, telling us that local municipalities, NY and Cal, are in big trouble and investors want the big corporates to guard their money while the fur starts to fly. Who knows how this turns out?