Reports and updates on the protests and riots have been dominating US news headlines during the past week. In the meantime, tensions rise again between China and the US; yet somehow the stock market rallies again, with S&P 500 (1,2%) and the Dow (400+ points) in the green.
Signs of a swift recovery appear on Wall Street as well, primarily thanks to the easy money made available by the Federal Reserve.
Despite the disrupted atmosphere across the country, the Nasdaq rallied for the fourth day in a row and is now only 1,5% away from reaching its all-time high of $9,817.2.
The enforced nationwide lockdown has forced millions of Americans out of their jobs, leaving the US labor market in shambles. On June 5th, according to the Department of Labor, another 1.8 million first-time unemployment claims are expected to be filed. Before the pandemic, the United States had never seen over 1 million claims in a single week.
The hospitality sector and the tourism industry have taken the hardest hit, with some businesses unable to survive the prolonged quarantine.
“There is a huge disconnect between the headlines we get every day both in the US and overseas and where the stock market is going,” Alicia Levine, chief strategist at BNY Mellon.
News headlines and the stock market don’t match because of the perspective of one against the other. The news focuses on today when investors look into the future. The economic reopening in the US and Europe is going better than expected, giving positive signals to investors and traders. Additionally, optimism rises as governments are becoming more and more efficient at controlling COVID-19 levels even after the restrictions have been lifted.
Within the S&P 500, the technology sector is making up a large portion of the index and pushes it up. Nevertheless, experts agree that the tech superiority may eventually end and investors should consider adding growth stock to their portfolio. In the liquidity-driven market, close attention should be paid to what the Fed invests into. Consequently, gold continues to be a good hedge and corporate credit is worth looking into.
According to Kristina Hooper, chief global market strategist at Invesco, “the stock market taking off — and decoupling from the real economy — is exacerbating inequality”.