Main Street's Pain, Wall Street's Gain

We document an increasingly important role of fiscal policy expectation in stock return responses to macro surprises. In a persistent low-interest-rate economy, when the Main Street suffers more than expected, investors may expect a more generous Federal Government support and drive up the aggregate stock prices, leading to a novel "Main Street pain, Wall Street gain" phenomenon. We then conduct cross-sectional analysis using the Covid period, which features an unprecedented fiscal spending in focus. A one standard deviation increase in the Initial Jobless Claims (IJC) surprise (8.7%) significantly predicts higher daily major stock index returns of 26-38 basis points; firms/industries that suffer more -- unemployment surge, revenue decline -- show higher individual stock returns when bad IJC surprises arrive