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Why is the stock market going up?
When the stock market is experiencing significant volatility, we often find ourselves spending time with clients discussing reasons why it has declined quickly or sharply. In contrast, we are now getting questions about why the market has recently increased when the world is in a global recession and health crisis. As of today, the S&P 500 has clawed its way back to about 10% below where is started 2020 and the NASDAQ has wiped out its 2020 losses. Why?
The sobering realization that COVID-19 is here to stay for the foreseeable future and reports of massive job losses seem as though they would negatively impact stock markets. However, there are other contributing factors to consider as to why recent stock market performance, which is typically a leading economic indicator, has rallied in the short-term.
Financial markets are stabilizing. Stocks typically reach the bottom before the economic numbers do. Panic and forced selling have subsided (for now). Volatility is still higher than normal but has significantly declined from March levels.
COVID-19 cases are stabilizing and, in many areas, declining. Testing availability has improved but has a long way to go. Hospitalizations and deaths as a percentage of confirmed cases have declined.
Washington is already in talks to pass another bill to provide aid to individuals, businesses, and state and local governments. Politicians are committed to passing the bill and, being an election year, they will include something for everyone. This will pump much needed funds into the economy and we anticipate a significant price tag. There are several items on the table:
- Aid to small businesses with strict rules on eligibility
- Aid to individuals, including a second stimulus check to individuals, food stamps
- Aid to state and local governments, although there is no support to bail out their pension funds
- Aid to hospitals and health care workers, including funding to provide additional testing
- A payroll tax cut and various tax exemptions
- Infrastructure spending
- Exemption from lawsuits relating to COVID-19
The world is slowly reopening, which will result in a gradual increase in demand for oil, goods and services. Turning the economy back on will see mixed results…some things will bounce back quickly; most things will take some time.
Interest rates are projected to stay at historical lows. This will provide savings for consumers, homeowners, and businesses with debt on their balance sheets.
US and China are working to negotiate a trade deal. These talks had stalled while both countries were dealing with shutdowns and relations continue to be tenuous.
Economic indicators are bad, but not as bad as many had predicted. Jobs reports are awful by historical standards, but still not as dire as most economists expected considering the shutdowns.
A CAVEAT: We do not believe this means the market has recovered and there are less risks going forward. History shows that bear markets can occur in stages and oftentimes reach new lows during the recovery period. Adherence to a long-term asset allocation strategy is critical to stay on track with financial plans and goals.
Is Zoom secure?
One of the beneficiaries of the quarantine and stay at home orders has been the online video conferencing service Zoom. Even the least tech savvy of people has been able to enjoy video visits and happy hours with family and friends around the world. There have also been reports (sometimes amusing) of Zoom meetings being hacked and hijacked. If you are a Zoom user, we highly recommend you do not make meetings public and only initiate meetings with a Personal Meeting ID or password. Also, verify you are using the most recent version of Zoom (5.0 as of today) as they are constantly improving their security protocols.
Summit has not historically used Zoom for client meetings as we favor a more secure environment when discussing and presenting personal financial information with clients. Our conference call system allows for encrypted screen sharing, but not video. We use Microsoft Teams internally and can hold client meetings on that platform if requested. Please reach out to your Advisor if you have any specific questions when scheduling meetings.
Recent Upswings in COVID Cases and Volatility Along with the news of Coronavirus cases continuing to accelerate around the […]