Why Wall Street is rising when Main Street is burning?
The last few days have seen unrest spreading to several U.S. cities in the aftermath of the killing of an unarmed African American by a white police officer but still the markets are rising. On the other hand Wall Street is going only north wards. The investors are betting on the revival of the economy and hardly have time for news of social unrest.
Source : MarketWatch
Is this an unique example or do we have precedents in the past? Investors do take cognisense of the fact that in the year 1968 when Martin Luther King was assassinated the S&P 500 index did finish 11 % higher year on year. The years of impeachment trial of President Clinton marked a 20% rise in S&P 500. The occupy wall street movement also could not dent the spirits and markets rose around 5% in 2011.
In the context of the Pandemic, the investors are pricing a recovery in the economy and clearly believe that the worst is over. This sentiment in the backdrop of more than 40 million job loss claims is a praiseworthy thing. The role of fiscal and monetary policy leading to record stimulus package and asset purchase programs cannot be forgotton. It clearly has given a healing touch to the investors bruised by the melt down between late February and early March.
The biggest question is whether this sentiment would persist in the coming days or would reality sink in when corporations start feeling the pinch of reduction in demand. As of now the protests seem to be gaining ground and if it persists longer then the double whammy of Pandemic and upheaval may spoil the party but till then investors are in cloud nine.