Two pieces of news have put the disconnect between markets and the real economy into stark relief.

On Monday, the National Bureau of Economic Research formally declared that the US recession began in February. It’s the fastest that NBER has designated a recession since the group began announcements in 1979.

But stocks still rallied, with the S&P 500 and Dow finishing the session 1.2% and 1.7% higher, respectively. The S&P 500 has now erased its losses for the year and is back in positive territory.

The stock market is notoriously forward-looking, and many believe this will be the shortest recession on record given that activity is already picking back up.

But plenty of market watchers are still concerned that the recent euphoria has been overblown, pushing valuations too high. After all, the outlook is very different now than it was in January.

“Either the market was too low then, or it’s too high now, because there’s no way our prospects are as bright right now as they were pre-[Covid],” tweeted Justin Wolfers, an economist at the University of Michigan.

That’s not to say there aren’t believers. “Given the backdrop of extremely low interest rates and inflation, the S&P 500 may not be overvalued at all,” Brian Belski, chief investment strategist at BMO Capital Markets said in a recent note to clients.

But for stock prices to make sense right now, you have to believe that:

  • Record support from central banks will continue apace, keeping interest rates near rock bottom and supporting financial conditions.
  • The economic rebound will resemble a “V” as consumers quickly return to old spending habits.
  • A second wave of coronavirus infections won’t appear in the coming months.

Central banks have indicated they intend to keep their foot on the pedal for as long as necessary. But it’s not clear that demand will be as robust as expected as lockdowns lift, and predicting the path the virus takes is all but impossible.

Bespoke Investment Group points out that every stock in the S&P 500 has increased since the index hit its low point on March 23. Airlines, hotels and cruise companies have been among the biggest gainers. But expecting earnings for US companies to bounce back in 2021 is definitely a gamble.