Why stock markets are rising despite covid crisis
2 min read
Has Wall Street missed the news that we are in a pandemic?
The U.S. economy remains battered by the coronavirus outbreak and Congress is deadlocked on another stimulus bill – yet the U.S. stock market just closed at a record high.
While it may seem that investors have failed to factor in any of the bad news weighing on most U.S. households, there are several key reasons why the stock market has recovered and could rally even higher.
On Tuesday, the S&P 500 closed at 3,389.78, surpassing the closing high of 3,386.15 from Feb. 19 – confirming the end of the its shortest bear market in history.
“Main Street lives for today, whereas Wall Street focuses on tomorrow,” said Sam Stovall, chief investment strategist at CFRA. “There’s been a massive amount of monetary and fiscal stimulus… and there’s a rising confidence that pharmaceutical firms are getting closer to a vaccine.”
The Federal Reserve kick-started the rebound into risk assets by pledging $3 trillion in unprecedented monetary support, going so far as to buy corporate bonds. That led to many investors repeating the mantra: “Don’t fight the Fed” as they swooped in to follow the central bank’s lead.
Fiscal aid from U.S. lawmakers helped the Fed’s recovery efforts and further encouraged investors, as has the ability of many companies to beat expectations with their second-quarter earnings.
At the same time, bets that the Fed will keep interest rates at rock-bottom levels and stimulus flowing for the foreseeable future have pushed yields on some government bonds to record lows, driving money into equities.
“There’s a lot of money sloshing around in the system and a lot of it is finding a home in stocks,” said Jeff Buchbinder, equity strategist for LPL Financial.
