The Conversation
Stocks are usually considered a barometer of a company’s future prospects, so rationally you’d think market prices would be a lot lower if a recession were close at hand. After all, recessions are a drop in economic activity, which means consumers and businesses are buying less stuff. The answer to my students’ question has a lot to do with profits and interest rates, but also “animal spirits.” To understand why stocks keep going up, researchers argue that you need to consider not just what profits and interest rates are doing, and what Wall Street traders are focused on.