If an ongoing pandemic, civil unrest, record unemployment, and a cloudy economic future will not bring down this amazing stock market, then what will? Analyst after analyst talks about the disconnect between Wall Street and Main Street. So, what gives? The Bull has written many times about the stock market, the collective wisdom of millions of investors, as a discounting, forward anticipating mechanism. The U.S. stock market, and increasingly many others around the world, are seizing on signs of economic recovery and expecting more to come.
Another important factor is liquidity. This is money flooding our economy and many others from central bankers around the world. The objective is to help support businesses and individuals during the lockdown period in the fight to slow the spread of Covid-19. It’s just that some of this infusion finds its way into the equity and fixed income markets. More money, more buyers, higher prices – a natural consequence. Liquidity has not been lacking in financial markets for some time, these additions just increase it.
So, as many on the sidelines wonder at the stock market climb, sophisticated investors understand and are benefiting. Climbing walls of worry is a classic behavior of stock markets coming out of many past crises. This one is no different; stay steady, my friends.
The Lonely Bull