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Sunday, April 18, 2021

The Dow Just Completed An Amazing Week, and Economic Stimulus Is Not the Reason For It

For many investors, the ‘what’ is more important than the ‘why’– and it is particularly more important right now, with the economic stimulus and everything. Let’s give you an example- the advancement of Dow Jones Industrial Average to 28,586.90- around 904.09 or 3.3% from its last outing this week. This is the second successive weekly gain – as the S&P 500 index, too, rose to 3477.3- an improvement of 3.8%. The Nasdaq Composite managed to gain around 4.6% to increase its points to 11,579.94. Russell 2000, a relatively small company, also managed to climb up on the index with 1637.55, at a percentage of 6.4%. 

Why Isn’t the Economic Stimulus the Main Reason For the Market to grow Rapidly?

An economic stimulus was the rage of this week- as it got most of the attention and the credit. Obviously there’s no doubt that any market would love the implementation of this bill- as will the Federal Reserve. Jerome Powell, the Federal Chairman, went ahead with several notices for the government to start acting faster, or things would go amiss. But there is a definite twist in this story. The economic stimulus isn’t all that these markets craved- for they surely wouldn’t have taken it sitting down when they did so- as President Trump decided to do away with the negotiations. There was no way the stock market would have allowed countless transgressions to happen over this period. 

How Is the Market Rising At this Tremendous Pace?

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There are a few possibilities of why the market is rising rapidly. One of them could be its vision towards the Blue Wave. This is a strictly political advancement as it would see the Democrats gain control over both the Senate and Congress- and Joe Biden will obviously win the election. If that is one of the reasons, then an economic stimulus might not be the most important thing on their mind at this point. Aneta Markowska, a Jefferies economist, has already removed the economic stimulus from her forecast for this year, and still doesn’t think it will see the light of the day. However, she believes if Biden wins the election, then they would probably be looking towards passing the $3.4 trillion Heroes Act that the House cleared all the way back in May. She writes that even if the legislation would be a very tiny fiscal multiplier, the boost towards next year would be extremely significant. 

Remember, the Blue Wave might be on a high right now, but the entire market hasn’t yet reflected it. For example, Chris Harvey, the strategist for Wells Fargo Securities has noted that most of the band stocks are rallying- even when the chances of Joe Biden winning are pretty high. He mentions that the times are pretty uncertain and unusual for everyone belonging to the market. 

In conclusion, we can state that it is just not the economic stimulus which is turning out to be a factor for the market to be rising so rapidly. There are a few other factors in play- and they might end up being the trump card- it is completely unpredictable. 

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