Why does the stock market rise against the trend when the US economy is uncertain?

On August 14 local time, the U.S. Department of Commerce released data showing that the monthly rate of retail sales in the United States increased by 1.2% in July, slowing down for the second consecutive month and lower than the 1.9% expected by the market. The data released by the US Department of labor the day before showed that the number of people applying for unemployment benefits for the first time in the United States last week has dropped to less than 1 million, the first time since the outbreak of the new epidemic in March, but it is still at an all-time high. < p > < p > with mixed economic data coming out one after another, the debate on the prospects of the U.S. economic recovery is intensifying. Not only do economists have their own opinions, but the White House and the Federal Reserve have their own opinions. At a time of uncertain economic conditions, the US stock market performed strongly. By the end of the 14th, the S & P 500 index closed at 3372.85, again approaching a record high. What is the reason for this? According to the data released by the U.S. Department of labor on August 13, the number of people applying for unemployment benefits for the first time in the United States dropped to 963000 in the week ending August 8, and dropped below 1 million for the first time in months, the first time since the outbreak of the epidemic in March. Although the number of people applying for unemployment benefits for the first time has dropped sharply from the peak of 6.87 million in March, it is still at an all-time high, far exceeding the record of 665000 people after the financial crisis in 2008. < p > < p > < p > according to the analysis of the Wall Street Journal, the decline in the number of people applying for unemployment benefits in the past two weeks reversed the once worrying upward trend in mid July. But there is one caveat to the recent drop in data: as the federal government’s $600 a week extra subsidy for the unemployed expired at the end of July, the incentive for the unemployed to apply for relief has weakened. < / P > < p > although it is difficult to accurately assess how much “motivational factors” may have had, in the past, an important feature of those applying for unemployment relief was that some people who were clearly eligible for unemployment benefits were unwilling to apply because they were afraid of trouble. In addition, although the number of first-time jobless claims fell to less than 1 million a week, economists generally advocate a cautious view of the data, as employment data from some other sources are sending different signals. For example, the number of hourly employees working in restaurants, retail stores and other small businesses has been flat since the beginning of July, with no sign of growth, according to Homebase, an employee scheduling software company. < p > < p > this is a noteworthy phenomenon, because since the outbreak of the epidemic, Homebase data is one of the better indicators in various forecasts of the monthly non farm employment data of the U.S. Department of labor. At the same time, data from Kronos, a labor management software company, showed that shift growth was similar to that reflected by Homebase data, indicating a weak recovery in the U.S. job market. < / P > < p > “the job recovery seems to be losing momentum.” “The drop in the number of first-time jobless claims is encouraging, but there is still a long way to go,” said Annie Lisa conkel, an economist with recruitment website indeed < p > < p > < p > after the “cautious and optimistic” employment data came out, the US Department of Commerce released data on August 14, showing that the monthly rate of retail sales in the United States increased by 1.2% in July, which had slowed down for the second consecutive month, and was lower than the 1.9% expected by the market. Among them, the sales of electronic products and household appliances increased by 22.9%, clothing sales increased by 5.7%, and the sales of bars and restaurants hit by the epidemic increased by 5%. At the same time, sales of auto parts and dealers fell by 1.2%, which led to a decline in overall data. Sales of sporting goods and bookstores fell by 5%, while residential sales fell by 2.9%. Analysts believe U.S. consumer spending fell short of expectations in July due to a cooling retail sales boom in the previous month. Since two-thirds of U.S. economic activity comes from consumer spending, retail sales are seen as an economic barometer. Previously, U.S. retail sales rose 8.4% in June, but the rebound in the epidemic led to economic restart and stagnated, slowing down the trend of sales growth. The slowdown in July reflected a decline in car and building materials sales, as well as weak restaurant and clothing sales. “The overall data for July show that the U.S. economy is still growing,” said Michael Capone, chief U.S. economist at Barclays. The outstanding question is whether we can continue this momentum into September and October. ” < / P > < p > “with the second wave of shutdowns significantly suppressing economic activity, and the federal government’s ceasing to send $600 weekly checks to the unemployed, the sky looks dark again.” Chris rupki, chief economist of Mitsubishi UFJ Financial Group in New York, said, “if Congress and the president can’t reach an agreement on how to support the budding economic recovery as soon as possible, as long as the plague is not over, the recession will not end.” The U.S. unemployment rate will return to single digits as early as this month, and economic growth is expected to reach 20% or more in the third quarter as the economy recovers from the recession triggered by the epidemic, according to Larry Kudrow, director of the National Economic Council of the White House. “The key point I want to make is that the economy is rebounding, it looks like a V-shaped recovery, and the near-term data we are seeing is even better than it was a month ago.” He said. The optimistic view from White House economists is in sharp contrast to the comments made by many officials of the Federal Reserve. The Fed officials said this week that the economic recovery was slowing after the outbreak rebounded again and that the U.S. economy would not recover fully until the virus was brought under control. Neal Kashkari, President of the Federal Reserve Bank of Minneapolis, said recently that the epidemic is spreading rapidly in the United States, and the current response measures of the United States are not effective, and “stricter blockade measures” should be implemented nationwide to control the epidemic. The S & P 500 index rose 0.15% to 3378.51 on August 14, but then fell back to close 0.58, or 0.02%, to 3372.85. On August 12 and 13, the S & P 500 index briefly broke through the record closing high of 3386.15 hit on February 19, and approached this high again on the 14th, and it was still close to it. As of August 12, global stock market capitalization / GDP reached 100.35%. This indicator is particularly high in the United States, which has climbed to a new high of 177%. At the same time, the U.S. GDP in the second quarter fell the largest since World War II, and the rebound of the epidemic situation is still dragging down the economic recovery. What many investors are concerned about is: why does the stock market rise against the trend? Can high valuations that deviate from fundamentals be sustained? < / P > < p > the first is the loose monetary policy of the Federal Reserve. Through unprecedented quantitative easing, the Fed is pumping liquidity into the market by buying US Treasury bonds and mortgage-backed securities on a large scale. In an interview with CCTV, Li Shanquan, senior fund manager of us Jingshun fund, said: “at present, the stock market is mainly driven by liquidity. With such a large monetary easing, there will always be a lot of liquidity flowing into the stock market. ” LPL financial, a financial services company, also said that large-scale monetary stimulus greatly increased the money supply, some of which was put into the stock market. “Historically, the growth of money supply and the trend of stock prices are synchronized.” The second reason is the optimistic expectation of the market. Li Shanquan believes that the market is expected to see a strong rebound in some parts of the United States, at least in the near future. For example, the Federal Reserve of Atlanta has raised the growth rate of US GDP in the third quarter, and the new estimate is 26.2%, higher than the previous value of 20.5%. < / P > < p > in addition, the market is confident that the vaccine can turn the tide. For example, when the positive news about the vaccine comes out, some safe haven assets will become less attractive and thus fall. Reuters also reported this week that expectations for vaccine development are prompting investors to reduce safe haven assets such as gold and treasury bonds and buy back shares of companies hit by the epidemic. The third factor is low interest rate. At present, the Federal Reserve has kept the target range of the federal funds rate at 0-0.25%, and has reiterated that it will continue to buy US Treasury bonds and mortgage-backed securities in the coming months to lower long-term interest rates. “If the interest rate is low, the relative expected return of the stock market will be significantly higher,” Li said In other words, the stock market has become one of the few investment options. < p > < p > < p > according to business insider, although stocks are expensive, they actually look cheap compared with US Treasury bonds. At present, the yield of 10-year Treasury bonds is hovering around 0.6%. Discounting future profits at such a low interest rate will significantly improve stock valuation. The fourth is the power of science and technology. The strong results of Facebook, apple, Amazon and Google’s parent alphabet at the end of July confirmed that again. Of course, these technology giants are not the only ones driving the stock market to rise. Considering that about 40% of the stocks in the S & P 500 index are classified as technology, digital media or e-commerce, the strong performance of these stocks has a significant pulling effect on the overall stock market. Privacy Policy

Similar Posts