Josh Barro tries to elucidate why the stock market has been doing so effectively in the course of a worldwide pandemic:
First, stock costs are speculated to mirror market expectations of the longer term income of firms….There was information in latest weeks that offers us good motive to imagine corporations will likely be much less worthwhile this 12 months than we’d have thought just a few weeks in the past. However there has additionally been information about medical analysis developments that gives motive to imagine corporations will likely be extra worthwhile in future years than we’d have anticipated just a few weeks in the past.
….Second, essentially the most generally mentioned measures of stock costs, just like the Dow Jones Industrial Common and the S&P 500, deal with very giant corporations. Massive corporations have extra monetary sources at their disposal than small ones do, and may be higher positioned to climate a nasty 12 months as they watch for vaccine hopes to return to fruition.
….Third, rates of interest have continued to fall, and low rates of interest increase the costs of many sorts of belongings, together with stocks.
That’s all cheap sufficient, however I believe my reply is perhaps completely different. As an alternative of utilizing a thousand phrases to elucidate it, although, right here’s a single image:
The purple line is the trendline of the S&P 500 from 2015 via February of 2020. As you possibly can see, the S&P 500 at this time is strictly on that trendline.
In different phrases, the stock market hasn’t soared not too long ago, it’s merely made up its panic losses and gotten again on its previous pattern. Traders have apparently determined that 2021 will likely be about the identical as they’d all the time anticipated earlier than COVID-19 struck. If you happen to have a look at stock indexes world wide, you’ll see a reasonably comparable sample all over the place.
So I wouldn’t say that buyers are particularly exuberent or something. They’ve simply determined that the early panic over COVID-19 most likely wasn’t justified. I hope they’re proper.
