THIS WEEK’S TOPIC: What accounts for the disparity between the stockmarkets and the economy?
Interestingly, while the US currently tops the world in terms of having the most Covid-19 cases and deaths, its stock market has risen 42 per cent since its bottom in March, erasing almost all of its losses since the beginning of 2020.
There are two reasons for the disparity between the stock markets and the economy.
Firstly, the market is a forward-looking mechanism, which means that even in bad times such as now, the market is looking forward to brighter days ahead.
Secondly, the US has announced an enormous US$2 trillion stimulus package, which includes US$750 billion in corporate bonds and US$500 billion in state and local government debt. As with previous quantitative easing measures, part of this liquidity will inadvertently find its way into the financial markets, thereby giving them a boost.
To view my thoughts on Business Times, visit this link: https://www.linkedin.com/pulse/tale-two-different-intertwined-stories-mario-singh
