Why Is The US Stock Market So High Right Now?

At the onset of the global pandemic, almost everything felt shaky. Most experts spelled doom, not for global economies, but the world in general. Others feared something catastrophic could happen, almost similar to the Great Depression. Uncertainty and fear crippled most businesses and individuals around the world. Many people lost their jobs. Thousands of people died from the deadly coronavirus. Some major cities were on lockdown for a while. Almost everything else took a downturn.

Suddenly, the coronavirus death toll begins to rise again. The fact that vaccines would not be available anytime soon made situations even worse. 

Then came several protests about “Black Lives Matter” and the calls for justice not for murdered George Floyd, but also for other coloured people in the United States and around the globe who may have suffered any form of injustice. Many other marches were staged, though not all of them were riot-free.

Fast forward toward the end of the year, the much anticipated US elections take place with many tensions before it. Things became even scary when former President Donald Trump refuses to accept defeat. Calls for recounts and re-elections are made. Then there was the Capitol riot incident.

Finally, President Joe Biden is sworn in while his predecessor, even while leaving office still believed he won the elections.

What more can I say to let you know that the past 12 to 14 months have not only been eventful but also one of the most dreaded times ever in the history of the world in general. Almost everything and everyone in the world appears to be hit hard. However, the only thing that seemed not to have survived but also thrived amid all this chaos, crisis and drama want the US stock market.

Meanwhile, in times past, just any of the separate events or crises stated above were more than enough to affect and crush the entire market. Yet, in this case, nothing significant shook the stock market. 

What was happening? Did “luck” finally smile on the stock market? Why was the stock market not affected by all these brouhahas happening around it?

It appears luck did not actually smile on the US stock market (neither has it ever done so in the past). Rather, something might have happened behind the scenes. To put it sarcastically, someone was probably busy on Wall Street doing some magic to sustain the stock market. Who could this magician be? The Federal Reserve.

Role of the Federal Reserve

Interest Rate Cuts:

On 3 March 2020, the Chairman of the Federal Reserve, Jerome Powell, started what may become one of the most dramatic financial stunts pulled by the Federal Reserve. The Fed announced a half-percentage point interest rate cut. Though unprecedented, this move by the Federal Reserve aimed to make loans far cheaper for everyone – individuals and businesses – to access. However, this would only be the beginning of many “strange” things to happen. By 15 March 2020, the Fed had dropped the interest rate cut down to zero (0).

Unlimited Quantitative Easing:

Quantitative Easing is a way used by central banks to “pump” money back into the economy by buying high amounts worth of long-term bonds. What made the Fed’s own slightly different was that this was going to be “unlimited”, and introduced not too long after announcing a zero interest rate. To begin with, the Federal Reserve announced a $700 billion package; out of which $500 billion were government-issued, bonds and $200 billion went into Fannie Mae and Freddie Mac issued bonds (agency bonds) targeted at buying commercial real estate at lower interest rates. This was actually at the peak of the pandemic, and most brick and mortar businesses faced a potential collapse. 

Launch of Several Other Programs: 

Aside from the above, the Federal Reserve introduced a number of other programmes to strengthen the economy. These programmes include:

  • The Primary Market Corporate Credit Facility (PMCCF)
  • The Secondary Market Corporate Credit Facility (SMCCF)
  • The Term Asset-Backed Securities Loan Facility
  • The Money Market Mutual Fund Liquidity Facility, and 
  • The Commercial Paper Funding Facility 

Role of Congress:

The US Congress also played major a role in how things fared on the stock market. When the going got tough, Congress jumped in, too, with a fiscal policy. The Biden administration, through Congress, secured a $1.9 trillion pandemic relief package to ease pressure on US citizens how were hit hard by the pandemic. In other words, the US government handed checks to people.

The Big Picture

Why would the Fed and the US government consistently roll out such high-value interventions?

Inasmuch as it may appear that these moves were targeted at the average individual or small and medium enterprises locally, they were all carefully thought out plans to sustain the stock market.

Most of this funding ended up at the top corporations and high net worth individuals, in one way or the other, since most of these could take advantage of a lot of the money been invested into the economy. 

Using its power, the Fed was able to slow down the economy, and once things were relaxed, it took over the steering wheel of the economy and reinforced confidence in the stock market for retail investors. Since interest rates were already low, it just didn’t make sense to store up cash but to invest it in the already stable stock market.

As the main organisation in charge of monetary policy, the Fed simply could not stand the adverse effects of the economy if the stock market crashed.

The Economy Is Not The Stock Market

Stock markets are usually viewed as a replica of the economy. There have been many instances where a stock market crisis could be replicated throughout the economy. However, is this always the case? The US economy had a lot going against it. Yet, while people bemoaned the government with marches on the streets of the US, the Wall Street brokers were closing stock trading deals and the country’s stock market was soaring high. 

As a body in charge of monetary policy, the Fed never really put in place similar steps to support local and state-owned businesses, while they invested heavily in the large corporations.

In addition, by handing out checks to people, the US government wanted its citizens to do just one thing – to spend it. Moreover, since most of the surviving businesses during the pandemic were large corporations, most of these disbursed cash wet back into the large corporations. 

Meanwhile, these same large corporations were firing several people at the same time. What else could one expect, when they could make more money with less labour? They only got richer as most of the cash to be spent on wages stayed in the corporations.

The Bottom Line

From afar, what may have been seen to be a true reflection of a strong economy might be a combination of forces from different players behind the scenes? Though some steps taken by these players had adverse goals on people and small businesses in the short term, they have together been the very actions that made the ever-rising US stock market continue in its forward-looking trajectory it is enjoying today.

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