- The U.S. stock market is on track to see an all-time high by the end of 2020.
- Strategists including Bianco Research President James Bianco say it’s foolish to ignore the Fed’s actions.
- Morgan Stanley predicts Asia’s economy to recover, as global economic sentiment rises.
High profile analysts are convinced that the U.S. stock market is on track to see an all-time high by the end of 2020.
The central factor of newfound optimism around equities is stimulus effort by the Federal Reserve. Bianco Research President James Bianco said it’s “foolish” to ignore the Fed’s effect on the stock market.
The Fed is there… It has pushed a flood of money into the market, and I think it’s foolish to stand in the way of it.
Predictions on a sustained uptrend in the U.S. stock market follow Wall Street heavyweights like Paul Tudor Jones admitting the recent market trend has humbled them.
What’s Next For the Stock Market in the Near-Term?
The U.S. stock market is under immense pressure from various geopolitical risks and economic consequences from the pandemic.
South Korea, a close ally of the U.S., is on the verge of military confrontation with North Korea. Meanwhile, the relationship between the U.S. and China has not improved.
Fears of a second wave of the pandemic will restrict international supply chains, creating a challenging environment for both small and large businesses.
Yet, the U.S. stock market is rising solely because of the aggressive policy of the Federal Reserve.
The Fed has pumped significant liquidity into the market since March and vowed to do the same in the foreseeable future.
Bearish investors fear that if the Fed slows down its efforts, the entire stock market could react fiercely to it.
Bulls seemingly believe that the Fed has no incentive of pulling back from fueling the momentum of equities.
For buyers, the Fed’s unexpected decision to start purchasing corporate bonds was all they needed to hear.
The Board of Governors of the Federal Reserve System said on June 15:
The SMCCF will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds.
Strategists like Bianco have been buying stocks since early June. They suggest the opportunity cost of not entering into the stock market is too high at a time wherein the Fed is virtually guaranteeing sufficient liquidity in the market.
Sentiment Around Asia’s Economy is Also Bright
According to Morgan Stanley managing director Deyi Tan, Asia’s economic trend is also optimistic despite concerns of the pandemic expanding in the second half of 2020.
Tan emphasized that central banks and policymakers have a better idea to deal with an economic downturn in the short-term.
For that reason, Tan noted that Morgan Stanley does not expect the economy of Asia to “double-dip,” or drop again after an initial correction.
Even if it does go through a double-dip, the economist said it is not necessarily a negative trend.
Major stock market indices in Asia, such as Nikkei 225, SSE Composite, and Kospi, have recovered since May following the lead of the U.S. stock market.