Stocks have been on an incredible run.
The tech-heavy Nasdaq has set numerous records this year. The S&P 500 eclipsed its February high on August 18 and proceeded to set six more records before August ended.
And the better-known Dow crossed 29k today and is closing in on its previous all-time high.
Per Barron’s, the Dow had it’s best 100 day run since 1933 – up 50% from its March 23 bottom through mid-August. It’s stunning given the uncertainty regarding the economic backdrop.
It’s not that we remain mired in a recession. We’re not. The economy is in recovery mode, but there’s still plenty of ground to be made up. Yet, this story has been told before.
On April 24, I posted an article called the Wall Street Main Street Disconnect. The economy was cratering, and stocks were rallying.
However, let’s remember that investors attempt to discount future events, usually between 6 to 9 months.
The major market indexes bottomed March 23, and major data points began to rebound in May.
Factors lifting stocks
My list begins with, “It’s the Fed, stupid.”
- Federal Reserve stimulus and an open-ended commitment of additional support, which includes extraordinarily low interest rates and Fed guidance that low rates will continue for an extended period. Let’s not forget Powell’s late August speech, in which he stressed that the Fed will take a softer line on inflation and won’t be as quick to pull the trigger on raising rates.
But let’s not stop there.
2. An improving economy has also helped. Put another way, better economic numbers and Fed stimulus have combined to create a powerful cocktail for investors.
Wait, there’s more.
3. A smaller-than-expected drop in Q2 S&P 500 profits (Refinitiv),
4. A rollover in new daily Covid cases (Johns Hopkins) and talk of a vaccine, and finally, investors may simply be looking past the steep recession of 2020.
Yet, let’s not discount risks. When stocks surge, any unwanted surprises can create volatility and an excellent excuse to take profits. One has to wonder, even expect, that we may see some rocky days.
For now, the bulls stepped in front of an expanding economy when few saw the robust bounce that occurred in May and June. The collective view of investors on the economy remains optimistic, even if the month-to-month rate of growth is uncertain.
Stay tuned.
