Why the stock market could boom this year with its biggest rally ever

The stock market, before Wednesday, rallied strongly as the coronavirus curve flattened. Imagine, now, the magnitude of the rally, Nigam Arora writes for MarketWatch, if the coronavirus were vanquished.

stock market rallyNigam Arora for MarketWatch:

President Trump has said that, due to pent-up demand, the economy will eventually “pop back like nobody’s ever seen before.”

Regardless of your political views, it’s worth reviewing that scenario…

In our analysis, there is a reasonable probability that the U.S. stock market may see the biggest rally ever post-coronavirus.

• Stocks compete with bonds. The Federal Reserve is likely to keep interest rates low for a long time. As of this writing, the 10-year Treasury yield is 0.647%. This is equivalent to a price-to-earnings (P/E) ratio of 155 — many multiples of the S&P 500 stock index. As a result, the stock market will see a significant multiple expansion.

• The U.S. economy is about 70% consumer-based. Consumers will have unprecedented pent-up demand for traveling, eating at restaurants, going shopping, going to the movies, etc.

• A mother-of-all short squeezes will take place.

• There will be reconfiguring of supply chains with less globalization. This will unleash unprecedented capital spending.

MacDailyNews Note: Arora offers more reasons why the stock market could boom this year with its biggest rally ever in his full article here.

34 Comments

  1. Not sure about people’s pent up demand for restaurants and movies. I think this will have a long tail. I, for one, am in no great rush to see a movie in a movie theater. I’d probably be fine never seeing movie again for $15 in a big room packed with people. As for restaurants, I’m happy eating at home, which is what I’m doing with carry out from time to time. I’m in no great hurry to rush into a packed room full of strangers to eat food sitting out under who-cares-how-many sneeze guards. I think people should not underestimate the power of this crisis to reshape our behavior for the long term. Especially if Social Distancing remains in place for another 12-24 months, which is not unreasonable to imagine. (The best-case scenarios have a vaccine ready for public consumption by next Spring.)

    1. social distance is not that effective if mask are not used. Taiwan has 23 million people on an island 1/3 the size of Florida where schools are open and business are open. Science (MIT research) says that aerosol spray from a cough can travel up to 30 feet and stay airborne a long time. The spray can also enters air condition systems and circulates through subways, planes and buildings.The virus can live on a surface for up to 3 days. The most effective solution is face mask, gloves, eye protection and clean surfaces. Again Taiwan remains open with a population density is many times greater then any USA city.

      Taipei Population Density 71,295/square mile
      NewYork Population Density 27,063/ square mile

      WHO and CDC keep giving us false info. The general public need proper face mask too. Then we can go back to work.

      1. What have they been shooting in my arm every year? No, flu vaccine isn’t 100% effective, because there there are multiple strains that mutate from year to year. That does not mean that the vaccine does not provide quite significant protection from serious disease.

        1. A vaccine prevents something fully. The “flu shots” have about a 60% success rate and are targeted a year in advance for a strain of flu that is expected but may not be the one that dominates. So, there is no flu vaccine. Real vaccines prevent measles, smallpox, chickenpox, etc. They are not 60% effective. They are vaccines.

          1. Wrong. An influenza vaccination attacks the greatest or highest probable type of flu in a season as there can be many variants therefore varying levels of effectiveness. Some vaccines are near 100% but none of them are completely 100% but that is because of the specific type of disease that is less of a moving target than influenzas are. “Flu shots” are still called vaccines and vaccinations. Sorry Charlie.

            1. They are not vaccines. They are shots. And like pharmaceuticals they have side effects which don’t become known till later. Antibodies naturally produced are far more effective. Bill Gates is the inventor of the computer virus. Now, he wants to vaccinate everyone with a government mandated and forced vaccine. Bill Gates can go to hell.

  2. Imagine the government via the Federal Reserve putting a trillion every ten days that it creates out of thin air to pump up the stock market. Three trillion a month of fake money buying stocks to create a boom based on fake money. What a brilliant idea. How come nobody thought of this before.

  3. Sadly, the word “imagine” is the key word in the article.

    We will come back from this, but the timeline has to be driven by the existence of ubiquitous testing and tracking – so that we know exactly who has the virus, etc. This is the only safe way to restart the economy en masse, without simply looping into further deadly waves of infection. Knowledge must lead the way, or we stumble in the dark. Hope is good (essential), but real hope has solid foundations and must not be reduced to wishful thinking.

    1. I should add that it is good to plan for opening what can be opened safely. There is also much work to be done to be better prepared for pathogens of the future. One big challenge (among many) is building ways for commercial food producers to shift to consumer supply chains, instead of destroying food (pouring out milk, breaking eggs, plowing under crops) as is happening now.

      1. High speed rail, get your goods to market fast cut out the middle man, your representative at front and back in. The Imperial, Central valleys or the heartland of America tied in closer to market. Wish I had some land along the eastern Central Valley route those who think ahead will make happen.

  4. “the stock market could boom this year with its biggest rally ever”

    There’s not enough Fed or Treasury backed debt that ever could reinflate the stock market bubble. Kinda like trying to fix a flat tire by pumping air into before you replaced it with a new one.

    This whole economic meltdown kinda reminds me of a nursery rhyme:

    Humpty Dumpty sat on a wall,
    Humpty Dumpty had a great fall.
    All the king’s horses and all the king’s men
    Couldn’t put Humpty together again.

    The glory days of bubble financialization of our markets is over. Better start planning for something else, like a return to markets that reflect the state of corporations and economy. You know, an actual free market approach to price discovery and asset valuation.

  5. A rapid restart won’t happen for a number of reasons. The main one is that COVID will be coming back. SARS did three tours of the world. THe prediction is that COVID-19 will do its second tour come September. THAT will put a dent into any such comback. Of the 4 COVID vaccines, only2 or 3 are in phase I at the moment. That means it will take until next year to get through phase II and III and then production/distribution. What is intersting is that at least two of them are associated with China. Their vaccine capabilities outshine North American and European companies sadly. It will be ironic indeed that China enters and saves N. America’s butt.

    If the USA lessen’s their social distancing rules too early, it may be earlier than that. Its a tricky balance for sure but best to caution on the ‘let us not kill our vulnerable ones’ side.

    1. COVID might come back with a vengeance due to the stupidity of Social Distancing which prevents the population from getting it and developing the necessary immunities to make the virus run out of hosts. Herd immunity is what works. Social Distancing prevents herd immunity from happening thus extending the life of the virus. It is the dumbest move ever made by our government. Dumber even than Cash for Clunkers.

      1. The UK tried to develop herd immunity using your approach. They now have roughly 100,000 infected and 13,000 confirmed dead. That is only slightly fewer cases per capita than the United States and almost twice as many per capita deaths. The policy changed after the Prime Minister went into intensive care.

        California tried the opposite of your approach, locking things down early and thoroughly. It has 27,000 cases and 889 deaths. That is half the UK rate of infection and only about 11% of the per capita deaths.

        1. America has defeated every virus and seasonal flu without Social Distancing which destroys the economy and wealth of the nation along with the freedom of its citizens. We did this every past year against flu strains far more deadly than this. And we did not have to commit economic or constitutional suicide.

        2. Social distancing works at the beginning of a pandemic because it prevents overwhelming an unprepared medical response system and as importantly, slows the “seeding” of the virus across a large geographic area. Once the virus has spread across the world with the infected inhabiting every community, social distancing only prolongs the inevitable. Ubiquitous presence of rapid tests for the virus and keeping the vulnerable isolated until the availability of a vaccine or treatment are very important to keeping a more serious disaster in check. All of this being said, if the economic systems of the world are allowed to decay beyond a certain point, the consequences to supplying basic human needs could be far worse than the virus. We have previous pandemics to examine the impact on humanity. We don’t have any previous examples of such a worldwide, rapid shutdown of nearly all economic activity, so it’s difficult to weigh which of these horrors should be feared the most.

      2. Linking this virus to herd immunity is well and truly disputed.

        First, in Shanghai many young people who had had the virus showed low or no existent levels of antibodies. Do we have to drill down further to find out why this is the case? Perhaps so. Are they still infectious, well we don’t know. Likewise tests on older sufferers indicate high levels of antibodies and the older you are the higher the level of antibodies.

        Second, do the antibody levels stay constant over time or do they decline? We just don’t know and more testing and time will give us the answer to this conundrum.

    1. Makes no difference from a finance standpoint whose at the top spot if you the average dumb-ass American don’t save or invest yourself. California didn’t become the powerhouse by being a right to suffer red state. Look at the stupidness in the American southeast today from Texas to Florida.

      1. Exactly. Trump is the greatest bumbling buffoon president, Democrat or Republican, the U.S has ever known. His gullible and easily hoodwinked supporters all bigger idiots bereft of any good judgment or objectivity. Not the President we need right now. Despicable Donny proves his unworthiness every time he opens his mouth. Not saying the Dems are the greatest either but certainly better than the orange faced raccoon sitting in the Oval Office working toward an unquestioned authoritarian government. All one need do is listen to his daily briefings and shake one’s head in disbelief. This is not a normal human being

        And you know it.

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