One reason is that big corporations have not faced the economic pain that small businesses have
Why are stock market valuations soaring when the real economy remains so fragile? One factor has become increasingly clear: the crisis has disproportionately affected small businesses and low-income service workers. They are essential for the real economy, but not so much for equity markets. True, there are other explanations for today’s lofty valuations, but each has its limitations.
For example, because stock markets are forward-looking, current stock prices may reflect optimism about the imminent arrival of effective Covid-19 vaccines and radically improved testing and treatment options, which would allow for a more limited and nuanced approach to lockdowns. This outlook may be justified, or it may be that markets are underestimating the likelihood of a severe second wave this winter, and overestimating the efficacy and impact of the first-generation vaccines.