The Fed has signaled that it will keep its benchmark short-term interest rate at nearly zero through at least 2022, and low rates are often like steroids for stocks. With Treasurys and other bonds paying relatively little in interest, some investors are turning instead to stocks, gold and other investments, boosting their prices.
Congress also approved an unprecedented amount of aid for the economy. Some portions of that aid have already expired, and another economic relief package is tied up in partisan rancor on Capitol Hill. But many investors seem to expect Washington to eventually come to a compromise and throw another lifeline to the economy.
Meanwhile, the economy is recovering but at a much slower pace than its rapid collapse in the spring. After shrinking at an annual pace of 32.9% in the April-June quarter, economists forecast it will rebound at a 20% annual pace in the July-September period. The unemployment rate is 10.2% and is expected to remain in the high single-digits through at least the end of this year.
THE NATURE OF THE MARKET
Investors are setting stock prices now based on where they see corporate profits heading in the future. And for many on Wall Street, the future looks brighter than the bleak present, in large part because of hopes that a vaccine for the new coronavirus could help things get back to normal.
“Main Street is the now, Wall Street is the future,” said Sam Stovall, chief investment strategist at CFRA Research.
Companies have begun final-stage testing of potential vaccines for COVID-19, and many investors are hopeful that something could be available either late in 2020 or within a year. A return to normal could help the economy get back on track and perhaps boost profits back to record levels. Stock prices tend to track with corporate earnings over the long term.