U.S. stocks haven’t flinched in recent weeks as the coronavirus epidemic claims hundreds of American lives daily, the U.S. and China standoff threatens global trade and civil unrest sweeps through American cities in response to the alleged killing of George Floyd, a black man, by Minneapolis police.
Though it may seem that any of these factors might put a dent in U.S. equity prices, analysts and investors interviewed by MarketWatch said that improvement in the COVID-19 health crisis and the of gradual lifting of related economic restrictions is enough to support stock prices in the face of largely non-economic protests and geopolitical conflicts.
“Despite that we’ve had a lot of negative headlines over the past weeks, markets are still pretty focused on the fact that the economy is continuing to reopen across the nation,” Wayne Wicker, chief investment officer at Vantagepoint Investment Advisors, told MarketWatch. “We’re starting to see small and large businesses opening up along with extremely low financing rates. The market is enamored by the Fed and the Treasury pushing a lot of liquidity into the system.”
Congress has approved an nearly $3 trillion in stimulus spending to combat the economic impact of coronavirus, and is considering more, while the Federal Reserve has pledged to backstop everything from corporate credit to municipal bonds, while engaging in indefinite purchases of U.S. government debt and mortgaged-backed securities.
Meanwhile, investors are viewing the protests in cities across the country as phenomenon that won’t directly impact corporate profits, while the ultimate political impact of the unrest remains to be seen.
“Right now it’s limited enough that it’s not perceived as having a meaningful economic impact,” said Willie Delwiche, investment strategist at Baird. “The risk to the market right now is excessive optimism,” and headlines from protests could simply be dampening that optimism a bit, he added.
On Tuesday, the Dow Jones Industrial Average
gained 1.1%, while the S&P 500 index
rose 0.8% and the Nasdaq Composite Index
added 0.6%. So far in June, the Dow is up 8.5%, the S&P 500 8.8% and the Nasdaq 11.7%, according to FactSet.
Stock-market bulls also point to past instances of social unrest as evidence for optimism. “History shows there is simply no correlation between social/political turmoil and U.S. stock market returns,” wrote Nicholas Colas, co-founder of DataTrek Research, in a Monday note. He pointed to President Bill…