Did meet today, but there was no deal announced on a new round of relief. Weekly jobless claims this morning remained near 12 million, and the monthly payrolls data may still telegraph a great deal of doubt about the economic recovery. Investors continue to bid up stocks, the s p 500 and the nasdaq and the green, despite one of the biggest cliches of the year no connection between the stock market and the economy. Joe will put the cliche to the test today. Joe not everyone accepts that, even though it is repeated all the time. Our guest points out that if you were to break down stocks by quintile of sales growth, you see that the companies with the highest sales growth are on the right side, the far right column, they have the strongest yeartodate return, pretty clearly. On the left, the worst sales growth, you see the worst return. Judging by return performance of companies, you can see whether stocks are connected to the fundamentals. Romaine they look like they are. Some would argue when you look at total returns and adjust for inflation and put it all together, maybe that connection isnt there. I think this boils down to the question of not only what the economy represents, but what does the stock market itself represent . Joe that is the key question. Joining us now is the Research Director of the modern Money Network and the modern newsletter notes on the crisis. Claim gets repeated all the time. The stock market is disconnected from the fundamentals. It doesnt represent something. Why for you was that an important question to tackle and stress test, so to speak . It isor me, is it an important question because it is a larger part of our macroeconomic debate. What i would say is the people who are the most hawkish on Monetary Policy and may to a lesser extent fiscal policy tends to be hawkish precisely because they think Monetary Policy is much more about the stock market than it is about anything else. I dont want to say it has nothing to do with the stock market, but if a decent chunk of the benefit that is happening for the stock market is running through sales growth, that is much more of a direct connection , what is going on with the real economy and it is a more complicated question than if it was all just speculation. The stock market, you would really open the question about whether lowering Interest Rates as a policy tool that is worth more than the trouble it makes. Us,ine break it down for nathan, in regards to the returns we have had in the markets. We can use the s p 500 as a proxy here. The returns we see here, how up withks up syncs your argument about the broader economy. Would frame this as the stock market is not the stock market index, and these get cone inflated, because you are doing media coverage, daily coverage, you have to have some measure you are referring to so people know what is happening. When we get into these longerterm conversations where people are still using these headlines stockmarket numbers as the benchmark, when you have to look under the surface. Youeneral, i would say cant really reduce these phenomena down to one number. I think in the stock market case, we really strongly see an example where the headlines stockmarket number isnt really telling people the information they need, especially in Something Like coronavirus, where you are having radical changes to what sectors are experiencing what level of sales. On the downside but also on the upside. Joe we know because we talk about this all the time, the s p 500 is not anywhere close to a representative measure of the economy or even of all businesses. It is heavily weighted, there are a handful of gigantic tech sempanies who businesses are doing extremely well. Nathan you have Tech Companies that are predominantly the companies that are experiencing date 20 plus years to sales growth. Because of the way these indices are constructed, their market capitalization goes up, they grow bigger in size compared to other sectors. Other sectors fall because they are experiencing declines in sales, meaning they take up a bigger part of the stock market. Inherently, with the way stock Market Indices are constructed, they are biased to pick up big players that are growing big and to underweight the losers. If you are losing, by definition, you are becoming a smaller and smaller part of the index. To start frome the beginning of the year or have some other way of breaking down what is going on, for example, by sales growth to see what is going on with the losers. Romaine does that get you to the stage where if you are trying to get some, some discernment to where the economy might be going, you can reliably use some of the stock market indicators . Not necessarily all the indexes we normally use, but some of those indicators as a proxy for where the economy might be headed . Nathan absolutely. If you break down stock market data and it is not just the headline index number, you can get a lot of information. By breaking down the number, we can see the holes the stock market has, and the holes become more obvious and we can adjust more in our thinking. By definition, you will get the largest companies. When you see that the losses are concentrated among the companies with the smallest stock market capitalization, it is a pretty safe guess, especially with other information we have, that below the even bigger Public Company level. That also goes for foreign sales. Joe one thing that your work establishes is ok, if you break it down, there is hard to see some egregious bubble. This being said, there is a less disconnectform of claim, which you might agree with, which is as good as the stock market is doing, it might not reflect the same position of the typical American Worker during this crisis. Nathan absolutely. Your very clearly, earnings will benefit if you lay off a bunch of workers in demand conditions. Otherwise your measure of productivity will fall off because you have some workers hanging around and you have to pay them, but you see that all the time. Much peoples not so saying, you know, the stock market is disconnected from the experience of the average worker. Uniquelym is with them asserting this stock market disconnect, or what is going on now, and associating it with some Monetary Policy thing, when that is true all the time. When you were under the vulgar era and Interest Rates were 20 plus percent, the stock market was very disconnected from what workers were experiencing at that time as well. This is an ever present thing. I read a bunch of pieces to make sure i was arguing into the best points of the argument, and none of them are making the case that the stock market is disconnected. They are specifically focusing on these areas and emphasizing this Monetary Policy distortion. Romaine an interesting argument here. Nathan, great piece there. Us, publisher and money of modern network. On the other of the argument, bloomberg call is columnist case are will be joining us next. We will have that conversation with him in just a moment. This is bloomberg. Joe all right. The stock market is not the economy or is the stock market the economy . Im confused. There seem to be a lot of different opinions about the correlations between stock market returns and gdp and some other measures of the economy. A heard from Nathan Tankus while ago, saying the two are linked, but the evidence is not there. Joe so the stock market or excuse me, the gdp smoothly goes has beenime, growth steady, but the stock market swings wildly. We have the stock market, total return s p is the orange line. Gdp, so ifal annual you are trying to establish that the market can get disconnected from what is going on in the look howomy, volatile equity charts are. Romaine this is a debate we are going to solve in less than 30 minutes. Joe i am looking forward to solving it right now. Joining us now is bloomberg opinions nir kaissar. Why is this chart important . As we frame the discussion, why is this important to look at . It it is important, because puts this idea that there is a divergence between the market and what i call the broader environment. It is like the economy as a political landscape, social landscape, and really puts it in perspective. A lot of people want, i think, there to be a connection. They want the stock market to reflect the broader environment. What that chart shows you is there is never a relationship between the two. The market does what it does because it is looking at a different set of criteria. All it cares about are the public trump dennys Public Companies that trade on its stock. It doesnt care about government spending, Small Business it only cares about its companies. We should stop looking to the market as a gauge. Romaine i am going to get the white house on the phone for that in here. There is a general sentiment factor here, the idea that we all want to be able to do barometer,hat is a a realtime barometer, if you will. We do not have a realtime barometer with economic data, with daytoday moves in the market here. When you look back at the data, in particular when we came out of major crises like the recession and the world war era from years ago or the hyperinflation era of the 1970s, what did you find in regards to the correlations . Nir it is interesting to point that out, actually. There are times when the market can be useful in that sense. The market will sort of signal a recovery or a decline before it shows up in the larger economy, so if you are looking, for example, say the current environment we are in right now if you want some sort of whentime thing to tell you we are coming out of the coronavirus funk or the financial crisis or whatever, the market can be useful for that. The market turns months in advance of the broader economy. When the market falls apart, it is usually telling you not usually, but it is usually telling you there will be a deterioration that is caused by some larger economic event. In that narrow sense, i do think, romaine, there is some information that markets can be used for. Joe one of the things that strikes me looking at this crisis, if you look at some of the realtime Economic Indicators everyone has become fond of looking at, whether it le mobility or opentab reservations, whatever, it did bottom the first week in march, second week in april. Im curious if over time, you think the market is losing, is less predictive in more of a realtime concurrent indicator . Nir you talked about this with your previous guest. It depends on the structure of the market. Sometimes the market represents a broader swath of the economy because of its market cap weighting market cap then it does at other times. I think it really depends on the type of market that you have. Market structure. Having said that, you raised a different point, joe, that is with thingse, which table,en tate of open there is alternative data that is better than the market because it is speaking to the economy at large rather than a handful of companies. In that regard, the stock market is actually going to become a less informed barometer of the broader economy than it has been historically. That type of data you are referencing, this highfrequency data that people seem to have been latching on, particularly in the covid crisis , is there an idea that the data at some point could be aggregated in a way where it could become more of a singular barometer, or will it be fragmented and people have to figure it out on their own . Nir that is an interesting thing to think about. I would imagine that eventually, we find a way to aggregated into some sort of composite. We have leading indicators that are a composite of various data points. We wille at some point, have that as the data becomes more widely available and more people look to it as a barometer. A lot of people dont even realize that information is there right now. Joe in the last segment, we were talking about how hard it is to say anything from the headlines, because the s p 500 bigominated by a handful of tech stocks. In terms of finding economic signal, would it make sense to look at more of the classically areas like banks, energy, these areas that dont have a secular growth aspect to them, but whose fortunes see more clearly linked to gdp and the economy and growth in general . Nir you know, it is a fun idea. Iwill say, in the work that have done, it seems to me as you go deeper, as you cut the market into thinner slices, the information gets worse, not better. The reason for that is because it is very difficult to know how different sectors are going to do with different environments. Banking sector, for example, in the late 1990s they did well, before the financial crisis. Then because of the financial crisis they fell apart. In the subsequent recovery, banks have not done well. Looking at any particular sector, you would have to deal with idiosyncrasies of how that sector is doing relative to the broader economy, and those things are very difficult to gauge. Acknowledging the problems we have with the broad market, i think that is a better barometer than looking at sectors individually. I have a very friendly friend here, as you can see. To bloombergks opinion columnist nir kaissar and his friend for discussing this with us. Up next, we will change to chinas climate paradox and examine why they are consuming half the worlds coal b and pledging to be Carbon Neutral by the middle of the century. This is bloomberg. Romaine welcome back. We are going to pivot now to what is going on in the world of energy, the climate, oil, and wake of stimulus uncertainty. This has been an interesting time, because there is a lot of talk about the future and how crude is going to be used, whether we move to alternative fuels or maybe we dont. Joe there are two stories for crude and the fossil fuels in general. There is a longterm story, but also the shortterm supply and demand story. It is not great in the short term either. Here is a five day chart. You can see oil is not exactly screaming incredibly robust demand, Economic Growth down in the last day, falling sharply today before bouncing a little bit. But it will go back to above 40 a barrel. Romaine demand has not come back. The big wildcard will be what happens with the larger economy, not just the u. S. , but the more ar economy, alla la china. Joe andy, china is a voracious consumer of coal, but also it is pledging to be Carbon Neutral by the middle of this century. Is it a contradiction or is it to things going on at once that will eventually resolve itself . Is an open question. The interesting story now is when it comes to the battle against climate change, the primary battle lines in the drawntoday are not between the rich industrialized countries of the global north and the developing countries of the global south. The decisive battle is being played out within china. When it comes to energy policy, china is at war with itself. On the one hand youve got the coal lobby backed by state owned enterprises, by powerful families within the Chinese Communist party, and very powerful bureaucratic players within the provinces. On the other hand, you have the renewable lobby, which is substantially into the private in the private sector. It is very unclear how this battle is going to play out. Do i make of jie zheng pings pledge to be Carbon Neutral in china within the next 40 years . Aunt xi jinpings pledge to be Carbon Neutral in china within the next 40 years . Andy people dont know how this is going to come about. An attempt at an intro climate the face of a change united states. In a couple of months, china will have to publish its 14th fiveyear plan. We will see whether state planners are really going to get behind it and where the investments, the big bets on the chinese economy, are going to be placed. Pure,hat about from a mathematical, physics perspective . Do people think they can really do it . Is their capacity to get enough clean energy online, given the demand they are going to have over the next 30 years, or do people think it will be difficult even if there is the political will . It is a monumental task. China is now dependent on coal for 58 of its energy consumption, right . 66 of its energy generation. Right nows right now, the coal lobby has the upper hand. The numbers are heading in the wrong direction. We see justin the first half of this year, we have seen coal plow coal power plants approved. In the pipeline, we have projects in china approved or awaiting a green light equal to the entire installed capacity of the european union. These power plants support the construction of these power support millions of jobs, a very crucial thing. It is very difficult to put china down first social, ecological, and technological reasons to make this transition. Joe thats all for what you missed. Bloomberg technology is up next. Romaine this is bloomberg. 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Coming up, a big blow to big tex. Ceos have been called to testify in congress. Plus, restaurants are reopening in new york. How many