The S&P 500 index continues to defy gravity even as COVID-19 cases rise in the US.
Investors whom I’ve been talking to are understandably getting nervous. Will the S&P 500 eventually come crashing down to reflect the recession the world is living in?
Distinguishing the S&P 500 index from the economy
The first thing I want to point out is that the S&P 500 is not an accurate representation of the US economy.
The S&P 500 represents a basket of 500 of the biggest companies listed in the US. Although it may be tempting to assume that this basket of stocks should rise and fall in tandem with the whole economy, reality looks different.
There are 32 million businesses in the US, so the S&P 500 is just a fraction of this. In addition, the S&P 500 is a market-cap-weighted index that is heavily weighted toward just a few big firms such as Apple, Amazon, Alphabet, and Facebook....