What's Driving U.S. Stocks' Unprecedented Rally?
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What is the main topic discussed in this episode?
Here's your Money Briefing for Wednesday, September 16th. I'm Charlie Turner for The Wall Street Journal.
How unusual is the recent U.S. stock market rally compared with past crashes and recoveries?
We've never seen a stock market rally like the one that's taken place over the past few months.
What makes this time really unusual is that, you know, we have a recession going on. America still hasn't contained the coronavirus pandemic. We've seen corporate profits absolutely plummet. So against the backdrop of all of that, we're seeing stock markets soar back towards records.
Our markets reporter Gunjan Banerjee will talk about the factors driving the rally after the break.
During the pandemic, the stock market has been on a roller coaster ride. This spring, both the Dow Jones Industrials and the S&P 500 fell around 35% over just six weeks. That's the fastest fall ever from record levels into a bear market.
Why is the rally surprising given the recession and ongoing pandemic conditions?
The S&P's subsequent rally from bear market to record took just 126 trading days, the fastest ever such climb. And the Dow was almost back to its record high. So what's driving this rally? Let's find out from our markets reporter, Gunjan Banerjee. Gunjan, thanks for joining us.
Thank you for having me.
Gunjan, the market's recovery has been remarkable. And of course, it's happening at an incredibly unusual time. Has there ever been anything like it before?
The short answer is no, nothing like this has ever happened before.
How did the Federal Reserve and U.S. government stimulus help spark the market rebound?
I think the descent into a bear market and subsequent rally back toward record highs for major US stock indexes has just been completely breathtaking. And I think a lot of people are kind of struggling to reconcile how we've had such a speedy recovery in the stock market. What makes this time really unusual is that, you know, we have a recession going on. America still hasn't contained the coronavirus pandemic. We've seen corporate profits absolutely plummet. So against the backdrop of all of that, we're seeing stock markets soar back towards records.
OK, you've been looking into the various factors that are driving this rally. So let's take them one at a time. The federal government and the Fed have provided a lot of stimulus over the course of the pandemic.
exactly that's definitely one key factor that has differentiated this crisis from prior crises um and that's the speed of the federal reserve and u.s government's response to all of this which was just speedier and more muscular than ever before you know the fed cut interest rates to near zero the u.s government sent more than 150 million stimulus checks to americans and backed around half a trillion dollars in loans to small businesses. So the Fed and the U.S. government responded a lot more quickly than they did during the last financial crisis. And that's actually one key lesson that investors have learned. And that is, hey, it does not pay to bet against the Fed. Last time, during the last financial crisis, when the Fed stepped in and the U.S.
government stepped in to help markets,
What expectations do market participants have about the economy and corporate profits?
stocks did recover after that nadir. So investors saw that, and that made them think, hey, this time around, if the Fed is stepping in, I should not bet against that, and it's time for me to buy stocks.
Okay, now what about market participants and their expectations? What role does that play in the stock rally?
One key differentiating factor this time around is that because of the Fed's response and because of the US government's response, market participants are expecting the economy to bounce back pretty quickly. And I was pretty shocked to see this. They're expecting corporate profits to rebound later next year. They're expecting GDP to rebound. And we've already seen some signs of a recovery in the jobs market and consumer spending, though we're still definitely really far from where we were before.
Gunjan, we can't talk about the stock rally without talking about the big tech companies. It seems like big tech is leaving other sectors in the dust.
Totally. It's shocking to see just how dominant they've become in our society and also in the U.S. stock market. I think what we learned during the pandemic is that people started spending more time on their phones.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–0:11
2
How unusual is the recent U.S. stock market rally compared with past crashes and recoveries?
0:11–1:02
3
Why is the rally surprising given the recession and ongoing pandemic conditions?
1:02–1:34
4
How did the Federal Reserve and U.S. government stimulus help spark the market rebound?
1:34–3:08
5
What expectations do market participants have about the economy and corporate profits?
3:08–4:25
6
Why have big tech companies outperformed and concentrated market gains during the pandemic?
4:25–7:15
7
How are individual retail investors and momentum trades influencing stock price moves?
7:15–7:50
8
Could the winner-takes-all trend and reliance on a few large stocks make the market vulnerable?
7:50–8:22
Speakers
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