5 Reasons Why the Stock Market Will Flourish Even Before a Coronavirus Vaccine Is Found
Updated: Nov 16, 2020
Although we are in a global medical pandemic and the cases of positive coronavirus seemingly increases daily, the stock market just seems to be
bullying ahead. Remember, the economy is not the stock market and the
stock market is not the economy. So, here are 5 strong reasons why the
stock market may flourish before year-ends:
1) Very little distributions. The big institutions such as mutual funds, pension funds, insurance companies, hedge funds, and investment banks account for close to three-quarters of the volume of trades on the New York Stock Exchange. So, they move large blocks of shares and have a tremendous influence on the stock market's movements. Since the lows in March, there has been very low distributions (selling). Meaning that they are more likely to hold on to their positions because of the possibly that something better is coming down the road.
2) Markets are forward-looking. The economy is still a long way from regaining
pre-pandemic GDP levels, but the stock market's recovery is a reflection of the
forward-looking nature of the stock market. Stocks reflect future expectations
in real-time. The current rally does reflect an outlook for a continued economic
recovery and rebound in corporate profits for the remaining of this year. In fact,
the S&P500 hit a record high today (as of this writing).
3) Help from the Federal Reserve. There is a global effort to keep interest rates low and the markets high as we maneuver in this pandemic environment. The
Federal Reserve has been gushing monies into the system to make sure businesses and the economy stay afloat and possibly recover from the recent downturn. As a result, this liquidity is also providing an equity friendly environment.
4) The Presidential Election. Trump wants to get re-elected. Anyone running for re-election will do everything in their power to be re-elected. In President Trump's case, this will include various tax cuts and keeping pressure on the Federal Reserve. He is pushing the Fed to come up with a new stimulus but that looks like that will unlikely happen prior to the November election. That's bad for the Republicans! Also, his deal/no deal with China could very well determine his fate.
5) A possible vaccine. Nobody has a crystal ball that can accurately predict stock
price movements, but a vaccine could certainly be a big positive catalyst. At the
moment, the hope is that a vaccine will be widely available later this year or early 2021. The market is already pricing in a strong probability that a coronavirus
vaccine will become available somewhere in that window. Obviously, there's no
guarantee that there will be a successful vaccine at all, so as indications arrive
that suggest it's more likely, the stock market will react positively.
In short, a vaccine for the coronavirus is the world's main concern and hope for us all at this very time. Life has changed and we are still battling the effects it has put on us. However, in the meantime, there is one system that we can participate in right now that's putting smiles on people faces that's actually functionally quite well and that is the stock market. Some stock prices are still at its lowest since COVID-19 hit us which gives us an opportunity to get in while prices are low and hold on to them and wait for prices to rise (hopefully) when a vaccine has been discovered. "Catastrophes Creates Opportunities".