There’s never been anything like stabilization in the US financial market before. The time it took for shares to reach their former high has been calculated in decades since the 1929 Wall Street Crash. It was calculated in years, since the global financial crash of 2008. This time it took less than five months for the S&P 500 to regain all of its lost ground and hit a new high – from a low on 23 March. Not even the bullishest trader would have been betting on such a quick recovery at the time, but five factors explain the remarkable turnaround.
US financial market is recovering
Operation by the Federal Reserve
Also when the US financial market collapsed early in March, America‘s central bank was working to convince creditors that it would go all the way to helping the world’s greatest economy and avoiding a financial crisis.
The Leaders of Tech
For some industries the shutdown was catastrophic, especially hospitality and aviation, but people left at home spent more time reading, shopping, streaming, socializing and working. To the five major American internet giants – Apple, Amazon, Twitter, Google, and Netflix, it was positive news.
Regular life resumes
In the second quarter of 2020, the US economy contracted by nearly 10 per cent. But on Wall Street, which is now ancient history. What matters is that activity is picking up, and unemployment is falling, albeit in fits and starts – as shown last week, when new claims for unemployment rose above 1 million.
Wall Street traditionally looks beyond the short term and anticipates a company’s earnings. Which ultimately depend on its stock of US financial market valuation – will recover.
A Medical Performance
Covid-19 ‘s catastrophic economic effect has prompted a scramble around the world to develop a vaccine. It normally takes years but there are optimistic signs – particularly from Oxford University academics – that the process may be streamlining.
There is no other choice
During the early days of the pandemic, creditors sold shares and invested their funds. During conventional safe havens such as gold and bonds from US treasuries. Yet Fed and other central banks’ actions have made those choices less attractive.
Interest rates for savers are barely above zero. And interest rates (yields) on government bonds in some countries have turned negative. Meaning investors have to pay the state for the privilege of putting their money into a safe asset.