Stock market has predicted nine of the last five recessions

V? W? U? L? They are a passe. As economists try to forecast what the economic recovery might look like after the lockdowns finally draw to a close, a more recent contender has been the K.

Some analysts and financial journalists are now predicting an uneven K-shaped recovery, with some sectors rising rapidly while others slide on a descending path, with rising stock valuations and individual wealth at the top, falling incomes and deepening pain at the bottom. Clearly technology businesses, including fintech, e commerce and e entertainment are the key beneficiaries of working from home. Restaurants, bricks-and-mortar retailers and even cinema halls will face permanent disruption from the digital cost-cutting disruptors catapulted by the COVID-19 pandemic.

For the wealthy and those able to work from home, the pandemic has represented just an inconvenience. Life has gone on, albeit challenged by new technologies and new routines. Their lives have not been upended by the outbreak, for some high-heeled people life is even better and more prosperous during the lockdowns. That has not been the case for those outside the work-from-home bubble. Blue-collar workers, bricks-and-mortar employees have been laid off en masse. That the outbreak has hit working-class communities hardest is hardly a surprise. The number of salaried people losing their jobs amid the Coronavirus pandemic has surged to 1.89 crore since April, with around 50 lakh jobs lost during last month, according to data from the Centre for Monitoring Indian Economy (CMIE).

Alongside of peaking unemployment, stock markets are also competing for the peak, kandhe se kandha milakar. On 18th of this month, the S&P 500 stock index has hit a record high in the US. But S&P 500 companies derive 40% of their revenues from countries outside of US. The next day, Apple became the first US company in history to be valued at more than $2 trillion. In India, NIFTY 50 index at 11,400 is just 5% below its lifetime high of 12,103. Reliance Industries Ltd reached an all-time high market cap of Rs 13 lakh crore during this month. This in turn propelled Mukesh Ambani to the position of the world's 4th richest person. But not all stocks are peaking. Technology giants, private banks, pharma and niche companies are quoting at all-time highs.

Stock prices have never been closely tied to the state of real economy. As an old economist's joke has it, the stock market has predicted nine of the last five recessions - a joke from master Keynesian of decades ago Paul Anthony Samuelson (May 15, 1915 – December 13, 2009). Samuelson was the first American to win the Nobel Prize in economics in 1970. Wall Street Journal's editorial maestro Robert L. Bartley completed the thought, when he quipped that in the other four, Washington got the message and mended its ways in time. Nowadays, this disconnect between the financial markets and real economy is even greater than usual. The stock market values of many companies have very little to do with their current profits. It is more a game of investor perceptions and plenty of liquidity.

Unfortunately, ordinary citizens and unemployed youth get very little benefit from the booming stock markets. Many employees who have lost their jobs, are selling vegetables or running tea stalls. Billionaires are doubling their wealth during the pandemic. But then, who cares?

(V Venkateswara Rao is a retired corporate professional and a freelance writer)