Despite the coronavirus crisis that spurred lockdowns on business across the United States, April was the best month for the stock market since January 1987 and the best April since 1938. The S&P 500 skyrocketed 13% in April; CNN reported, “The S&P 500 now trades at 21.7 times projected earnings, the loftiest level since May 2002, according to Refinitiv.”
April was the best month for the Nasdaq since June 2000. Mark Haefele, chief investment officer at UBS Global Wealth Management, stated, “Over recent weeks, a path to our upside scenario, in which we see a sustained return to normality from June, has emerged,” pointing out that a “sustainable end to lockdowns” could spark a rise to the economic output prior to the coronavirus crisis.
MarketWatch reported, “Apparently, stock-market investors are betting that the viral outbreak that has devastated the jobs market, pushing the total number of Americans to around 30 million and likely driving the unemployment rate to the worst levels since the Great Depression, is likely to eventually subside.” MarketWatch added that the Dow Jones Industrial Average was “looking at a gain of 11.1% in April.”
Consumers are still wary about the economy; The Bureau of Economic Analysis reported that in March the savings rate in the United States rose to 13.1%, the highest since November 1981.
But MarketWatch’s Mark Hulbert noted that seven of the past eight years have featured positive gains in the six-month sell period between May and the end of October; that supposition was buttressed by data compiled by LPL Financial.
Chris Dillon, capital markets investment specialist for T. Rowe Price, told Market Watch, “Markets are looking through this horrendous air pocket of economic fundamentals and leaning on the Fed … We’re all MMTers now.” Modern Monetary Theory, MarketWatch explained, is the idea that government budget deficits don’t matter.
Dillon added, “And investors have taken heart from strong corporate reports from Facebook, Microsoft and Tesla late Wednesday, perhaps reflecting more optimism about the ability of technology stocks to be “on the right side of COVID-19.”
Yahoo Finance reported, “Policymakers reaffirmed their commitment to support the domestic economy with a wide range of stimulus measures. On the heels of a pair of emergency rate cuts and unscheduled new programs released over the past month, the Federal Reserve said on Wednesday it would keep interest rates near zero for the foreseeable future, ‘until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.’”
The Federal Reserve played a significant role in the stock market’s sustainability; on March 23 the Fed issued a statement that read:
The Federal Reserve is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time. The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.
The Federal Reserve’s role is guided by its mandate from Congress to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system. In support of these goals, the Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit to American families and businesses …
The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.
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