The US Federal Reserve building in Washington DC (Image: Wikimedia/Jbarta)

The gap between grim reality and market sentiment in the United States is widening to the point of absurdity. On Wednesday US time, we learnt its economy had contracted at an annual rate of 4.8% in the three months to March, while the Federal Reserve left its monetary policy stance at the easiest in decades.

But Wall Street rose more than 2%, ignoring the increasingly stark reality from the economy and giving weight to the latest in a number of reports about possible COVID-19 treatments.

A lot of the market optimism is driven by expectations that there will be a big economic rebound in 2021 -- the "V-shaped recovery" -- even though major economies are all likely to be smaller at the end of 2021 than they were at the end of 2019.