By CCN Markets: Following the U.S. stock market's wildest week of the year, the Dow Jones and other major indices appear poised to start the week off with a bang. But just days removed from the Dow's worst loss of 2019, why has Wall Street…
But just days removed from the Dow’s worst loss of 2019, why has Wall Street suddenly turned bullish?
Three words: central bank policy.
While the sentiment around a potential trade deal between the U.S. and China remains gloomy, investors expect central banks to be on alert after the U.S. 30-year Treasury yield plunged below 2 percent.
In recent weeks, billions of dollars have rushed into government bonds to safeguard investor holdings against more potential downside movement amidst intensifying geopolitical risks.
On Sunday, President Trump said that he’s in no rush to strike a trade deal with China. Americans, he said, are “rich”:
“We’re doing tremendously well, our consumers are rich, I gave a tremendous tax cut, and they’re loaded up with money.”
President Trump stressed that he is “not ready” to make a deal with China, noting that Hong Kong could benefit the trade deal if the tension can be relieved in a humanitarian fashion.
“I would like to see Hong Kong worked out in a very humanitarian fashion. I think it would be very good for the trade deal.”
With a U.S.-China trade deal becoming less likely in the short term and investors pouring into government bonds, equities bulls believe that central bank stimuli are inevitable to prevent the global economy from losing steam.
The European Central Bank (EBC), for instance, is said to be considering another cut to its benchmark interest rate in September to provide fresh stimulus to the eurozone.
The U.S. Federal Reserve could be close behind.
Still, analysts are not dismissing the likelihood of a synchronized global recession in the medium term that could affect the Dow Jones and other key stock indices across the globe.
Rana Foroohar, the author of “Makers and Takers: The Rise of Finance and the Fall of American Business” and a columnist at FT, stated that investors are embracing turbulence in the global economy, suggesting that the recent stock market drop is a consequence of a long-lasting “sickness” in the global economy.