With
more than 108,000 U.S. deaths from Covid-19, deep job losses caused by the
economic shutdown, and now demonstrations on “Black Lives Matter”, stock prices
are close to the earlier peak of this year.
Image: REUTERS/Darren Ornitz
One
could say that the market is a world apart from sickness and strife of a
nation. Stocks are overwhelming owned by the wealthiest households, mainly
white. The top 1% account for 56% of the share ownership at end of 3Q2019, and
that amounts to USD21.4 trillion, according to Goldman Sachs. The bottom 90%
accounted for 12%, or USD 4.6 trillion.
The
divergence also falls along racial lines. African Americans are far less likely
than Whites to own shares. About 60% of white households hold stocks. That’s
twice the percentage for black households. But where black households are
headed by college graduates, 62% owned shares. In white households, 56% of the
people without a college degree possessed shares, while those with college
degrees the percentage was 86% for those who held shares.
With
lockdowns and soaring unemployment, policy makers spurred into action. The
Federal Reserve slashed interest rates twice, resumed quantitative easing, and
its balance sheet increased to over USD7 trillion. Fiscal measures also came
into place with USD 3 trillion-plus Cares Act.
The
effect on financial markets has been electric. The S&P 500 rebounded 39%
from its low and is just 8% below its old high.
The
corporate credit market has also been on fire. Corporates issued more than USD1
trillion in debt with the central bank remaining as the back stop.
The
rising tide of liquidity lifted stocks, despite unemployment at 13.3% as at end
May 2020.
There
is a disconnect here between the markets upsurge and economic fundamentals.
Some will say it is a ‘dead cat’ bounce, others will suggest huge liquidity
because of QE, and still others will say the market has already priced in all
the negatives and now anticipates a V-shaped recovery. Is that true? What do
you think?
And
for Malaysia? Markets have moved up, liquidity is ample, but businesses are
shuttering. Why? There is a disconnect between main street and Bursa. Life in
the main street is difficult but those punting on the Bursa are having a whale
of a time! God bless Malaysia!!
Reference:
1.
Randall W Forsyth, Wall Street’s Rally Defies Main Street’s Stark Realities,
June 5, 2020, Barron’s
2.
Michael Santoli, The widely cited “discounted” between Wall Street and Main
Street suddenly appears less confounding, June 6, 2020, CNBC
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