2020 is not over yet, and many things may still happen. As we learned during the 2008-2009 Great Financial Crisis and in March this year, stock market corrections happen much faster and are more aggressive than recoveries. Hence, traders and investors should never rule out the possibility of a reversal in the few trading days left. After all, the year is not over yet.
However, one cannot wonder what keeps stocks up? Why do investors bid for stocks at such high levels, and when will this stop or ease? According to Bank of America’s Global Investment Strategy, not anytime soon. In fact, we have just seen the record 3-week inflow to global stocks.
Spot the essence – global stocks, not U.S. stocks only. While the U.S. stocks market is the most developed one, the chart reflects all markets. Hence, this is not a unique situation happening in the United States, but all over the world, investors pour money into stocks.
More Global Stimulus Expected Next Year
All economies around the world are on support from both governments and central banks – developed, developing, and emerging ones as well. As long as cheap money continues to pour, stocks cannot have a meaningful correction unless there is some kind of a circuit breaker, something unexpected coming – e.g., negative pandemic developments, a set back in the vaccine rolling, failure to transfer the power in the United States, etc. We can easily imagine all kinds of scenarios along these lines.
In the meantime, in the real world, stocks are at all-time highs. Moreover, housing prices in the United States are at an all-time high too. Furthermore, corporate bond yields are at an all-time low. Even more, mortgage rates are at all-time lows.
All these conditions make it easier for businesses and the population to borrow. Investors and wannabe investors never had access to cheap capital as they have this year. Corporations have never had such favorable conditions for raising capital and investing in it. As such, higher stock prices come because of easy monetary and fiscal policies around the world.
And there is scope for more. Despite everything mentioned so far in this article, Jerome Powell’s testimony this week focused on “extraordinary uncertain” times. He emphasized that the U.S. economy needs more years of zero interest rates and even more quantitative easing.
In financial markets, where the U.S. is going, the other countries are following. Therefore, expect the trend to continue should nothing unexpected come along the way.