Why is the stock market doing so well when the COVID-19 pandemic has yet to peak?
At the end of last week, the Centers for Disease Control and Prevention reported the United States remains in the acceleration phase of the coronavirus pandemic. This phase ends when new cases of COVID-19 level off. The next phase should be a period of deceleration, and the number of cases should decline.
There are several different models estimating when a peak may occur, and estimates vary from state to state, according to Sean McMinn of NPR. For instance, the model cited by the White House is from The Institute for Health Metrics and Evaluation at the University of Washington. It assumes social distancing measures will stay in place through the end of May. In this circumstance:
All other states have peaked or are projected to peak on or before May 2, 2020.
Despite estimates suggesting the virus will continue to spread and businesses may not reopen fully until the end of May, U.S. stock markets moved significantly higher last week. Al Root of Barron’s reported:
“The S&P 500 index rose 12 percent…its best week since 1974 – and finished 25 percent off its March low. The corresponding gain for the Dow Jones Industrial Average was 13 percent, up 27.8 percent from its low. The Nasdaq Composite jumped 10.6 percent, raising it 23 percent off its low.”
Many factors affect U.S. stock market performance, including company fundamentals (how companies perform), investor sentiment (what investors think), consumer sentiment (what consumers think), monetary policy (what the Federal Reserve does), and fiscal policy (what the federal government does). The driver supporting stock market performance last week was Federal Reserve monetary policy. Axios explained:
“The Federal Reserve announced Thursday it will support the coronavirus-hit economy with up to $2.3 trillion in loans to businesses, state and city governments…The slew of new Fed programs comes as economic conditions deteriorate at an unprecedented pace…and another 6.6 million Americans filed for unemployment benefits this week.”
There continues to be uncertainty about how the U.S. economy will recover. As a result, we are likely to see markets remain volatile.
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https://www.npr.org/sections/health-shots/2020/04/07/825479416/new-yorks-coronavirus-deaths-may-level-off-soon-when-might-your-state-s-peak#allstates (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-13-20_NPR-Coronavirus_State-By-State_Peak_Projections-Footnote_2.pdf)
https://www.barrons.com/articles/the-s-p-500-had-its-best-week-since-1974-next-up-an-economic-coma-51586560230?mod=hp_HERO (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/04-13-20_Barrons-Stocks_Just_had_Their_Best_Week_in_Decades-Get_Ready_for_a_Drop-Footnote_3.pdf)