The stock market keeps chugging higher despite growing evidence that the economy is in deepening trouble.

Driving the news: The S&P 500 posted yet another gain Thursday, even after new data showed the economy shrank for a second straight quarter.

• The index is up more than 7% so far in July, enjoying its best month since November 2020, when positive news about the effectiveness of COVID-19 vaccines first emerged.

The intrigue: Of course, stocks rallying on the arrival of vaccines seems to make intuitive sense. (It portended a recovery from an ugly economic and public health crisis.) Is it logical, then, for stocks to rally on the prospect of recession?

The answer: Yes! Around here, we often say "the stock market is not the economy (TSMINTE™ for short)."

• It's our shorthand to remind you that despite decades of press coverage that conflates economic conditions and stock market performance, the market actually has done quite well during downturns. This is especially true when the Federal Reserve cuts interest rates.
• Just look at the anni horribili of 2020 and 2021. Hundreds of thousands of dead. Millions of jobs lost. The sharpest downturn on record. Well, during those dark years the S&P 500 rose 50% as Fed easing pumped trillions into markets.

State of play: Flash forward to this year. It was the Fed's relatively rapid move against surging inflation — hiking rates and pulling back on money printing — that crushed the stock market, sending the S&P 500 down nearly 24% as recently as mid-June.

• Since then the stock market is up more than 11%. What's changed?

The bottom line: Interest rates tell the story.

• Starting in mid-June, the yield on the 10-year Treasury note — the most widely followed bond gauge, has plunged from about 3.50% to about 2.70%. (As we've explained before, falling interest rates almost automatically push share prices higher by raising market valuations.)
• Rates go down when expectations about growth and inflation fall. So, in a way, it's actually the fears of the slowdown that are helping to drive share prices up.
• Weird but true. And totally consistent with TSMINTE™.