OF ALL THE outcomes that might accompany a global pandemic, a historic stockmarket boom seems among the least likely. And yet on June 30th the S&P 500, America’s main index, ended the second quarter up by 20% on its March 31st close, its strongest quarterly performance in more than two decades. The rally has puzzled investors. Since March 23rd, the market has soared by 39%, even as the country’s official covid-19 death toll has climbed to more than 127,000. It is now just 8% below its historic peak. Why?
These gains can be attributed in large part to unprecedented government action. A $2trn emergency spending package, passed by Congress in March, sent $1,200-worth of stimulus cheques to most Americans, lent hundreds of billions to ailing firms and increased unemployment benefits for laid-off workers. The Federal Reserve, meanwhile, has expanded its balance-sheet by more than $2.8trn, much of which has been used to buy Treasuries and mortgage-backed securities. Trillions more in emergency business loans are on their way. The flood of money has pushed down interest rates, prompting investors to seek better returns in the stockmarket. Even those sceptical of the rally are joining in, if only to avoid missing out, a phenomenon dubbed the “FOMO trade”.
Source : Economist