[Text/Observer Network Chen Sijia] In the past two weeks, the performance of the Dow Jones Index has been the best since 1930. The dramatic rally has left investors facing a confusing reality: Stock prices are soaring but the economy is in trouble.
Stimulated by expectations for resumption of work and medication, this Friday, the Dow Jones Index rose by 704.81 points , a daily increase of 2.99%, and an overall increase of 2.2% this week. S&P 500 index rose 3% this week. The Nasdaq Composite Index rose 6.1% this week as investors piled into soaring technology stocks.
"The stock market is ignoring the economy" " Wall Street Journal " report screenshot
"Wall Street Journal" reported on the 18th and analyzed that this surge shows that many people are preparing for the recovery after the epidemic in the United States. Investors have been encouraged in recent days by signs that several states, such as Texas, are preparing to reopen their economies.
At the same time, it was reported that Gilead's remdesivir has shown certain effects in the experimental treatment of the new coronavirus, which further gave investors confidence.
html Dow Jones index trend on 17th, screenshot of real-time data from Oriental Fortune Network html In March, US stocks , which had been rising for 11 years, plummeted, and experienced circuit breakers 4 times in 10 days. But as of this week, the three major U.S. stock indexes have rebounded by more than 30% from the year's lows, which is a sharp contrast. However, the overall decline of the Dow Jones and S&P 500 indexes this year still exceeds 10%, while the overall decline of the Nasdaq index dropped to 3.6%.
After the US stock market bottomed out on March 23, the Federal Reserve lowered interest rates to a level close to zero. The Federal Reserve subsequently launched a plan to purchase U.S. Treasury bonds and mortgage-backed securities, and Trump also signed an unprecedented $2 trillion stimulus plan. Many investors believe these measures are central to the stock market rebound.
The overall market situation of the US stock market on 17 Yingwei Financial real-time data screenshot
However, while stocks are soaring, as the country with the worst epidemic situation, More than 22 million people in the United States have applied for unemployment benefits . U.S. consumer goods retail sales in March were seasonal After adjustment, it was also down 8.7% from the previous month, which was the largest decline since records began in 1992. According to data from FactSet, the first-quarter earnings of major U.S. companies fell nearly 15% from the same period last year, the largest decline since 2009.
Many analysts are betting on a so-called "V-shaped recovery," in which the economy slows sharply followed by a rapid recovery. Analysts at Goldman Sachs Group Inc. predict the U.S. economy will see earnings contract sharply in the first and second quarters before rebounding later this year.
Marko Kolanovic, global quantitative and derivatives strategist at JP Morgan Chase Group, said that improving medical data may encourage states to resume some areas, and he expects U.S. stocks to return to their highs in the first half of next year.
Other analysts point out that the current approach has limitations. They cited an example of a $350 billion U.S. government small business loan program that has run out of funds. The purpose of this loan is to protect jobs: If small businesses can avoid laying off employees, they can have the loan forgiven in the future.
Analysts said that this example shows that currently supporting the US economy and ensuring people's employment requires huge capital investment. It's also a challenge for lawmakers, who are now struggling to agree on the next round of aid.
In addition, even though the economic stimulus plan is implemented across the United States, it cannot change the behavior of people during the epidemic. They cannot just go out for dinner and shopping. Some analysts say this means the economic recovery will take longer than expected.
Pimco executive Dominic Nolan said: "How long will it be before you and I can go to a concert? Government programs don't really help."
As U.S. stocks rise, many investors in the United States Continue to buy government bonds and gold, which are traditional safe assets. Bond prices have risen, causing the 10-year U.S. Treasury bond yield to drop to 0.655%, and the overall price of gold has risen sharply compared to before.The simultaneous gains in traditional riskier and safer assets show that many investors are worried about a prolonged economic downturn.
However, the price of gold in the United States fell by 2% on the 18th. This may be due to the news of restarting the economy that restored investor confidence.
The rally in big tech stocks shows their outsized influence. According to data from the Wall Street Journal, the S&P 500 Index, which has a very high proportion of technology stocks, would have fallen by 19% this year if all companies were equally weighted; but if weighted by market value, the decline this year would have been 11%.
As the darling of U.S. stocks in recent years, technology stocks have been regarded as a safe haven by some investors. Amazon and Netflix stocks both surged at least 14% this week to record highs. Tesla Inc also posted 10 consecutive trading days of gains, its longest streak of gains, bringing its gains this year to 80%.
Mike Bailey, head of research at asset management firm FBB Capital Partners, said it appeared to be a "close your eyes and just buy" phenomenon. However, he himself has also purchased shares of , Amazon, and Apple.
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