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

What’s happening: 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:

  1. Record support from central banks will continue apace, keeping interest rates near rock bottom and supporting financial conditions.
  2. The economic rebound will resemble a “V” as consumers quickly return to old spending habits.
  3. 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.

See here: American Airlines (AAL) shares jumped 77% last week after the company said it would expand its schedule for July due to “improving demand for air travel.” But the industry has said it realistically thinks a full recovery will take years.

The oil rally’s days could be numbered

Oil prices have more than doubled since mid-April, when Brent crude futures, the global benchmark, hit their lowest level in decades. But Goldman Sachs thinks the rally could be nearing an end.

Goldman’s take: Record production cuts by OPEC and allies have eased the supply glut as demand has started to recover. But the investment bank thinks that investors may have gotten ahead of themselves, noting that inventories are still full of billions of extra barrels of crude.

“The inventory overhang remains significant and uncertainty remains high for the forward supply and demand outlooks,” strategist Damien Courvalin told clients this week.

Another view: UBS analyst Giovanni Staunovo said in a recent research note that the oil price rally could “prove self-defeating” if it encourages producers to ramp up production again prematurely.

Brent crude futures were last trading just above $40 per barrel. That’s a significant improvement over six weeks ago, but still well below where prices started the year.

Even oil giants don’t appear to have much faith in the nascent recovery. BP said Monday that it would cut 10,000 jobs this year as the company tries to cut costs and speed up efforts to pivot to renewable energy.

“The oil price has plunged well below the level we need to turn a profit,” CEO Bernard Looney said in an email to employees. “We are spending much, much more than we make — I am talking millions of dollars, every day.”

IBM to stop offering facial recognition software

IBM (IBM) is canceling some of its facial recognition programs and calling for a nationwide discussion on the use of the technology in law enforcement as Silicon Valley grapples with how to square its public commitment to racial justice with its own practices and products.

“We believe now is the time to begin a national dialogue on whether and how facial recognition technology should be employed by domestic law enforcement agencies,” IBM CEO Arvind Krishna said in a letter to Congress Monday.

The statement: Krishna called for new federal rules to address police brutality, my CNN Business colleague Hanna Ziady reports, including the creation of a federal registry of misconduct and compelling states that receive federal funding to provide more details on the use of deadly force by officers.

He also said the company no longer offers general purpose facial recognition or analysis software.

“IBM firmly opposes and will not condone uses of any technology, including facial recognition technology offered by other vendors, for mass surveillance, racial profiling, violations of basic human rights and freedoms, or any purpose which is not consistent with our values,” Krishna added.

Why it matters: Silicon Valley leaders often speak about the importance of addressing ethical concerns tied to the use of artificial intelligence while investing heavily in the development of this technology. The move by IBM signals that some in the industry could reconsider their positions in light of protests sparked by the death of George Floyd and calls for corporate action.

Up next

Tiffany & Co. (TIF) reports results before US markets open. AMC Entertainment (AMC), Chewy (CHWY) and GameStop (GME) follow after the close.

Also today: US job openings data for April posts at 10 a.m. ET.

Coming tomorrow: The Federal Reserve announces its latest policy decision amid record support.