The US stock market keeps showing mixed signals this week. Having dropped below the 3200 area, the S&P 500 index managed to regain its losses and get out to the positive territory.
Market participants are still concerned that the global coronavirus situation continues to deteriorate. The number of newly reported cases in the United States has once again exceeded 50 thousand. Dr. Mike Ryan, the WHO's emergencies director, added fuel to the flames, saying that the pandemic is “not going away,” and 50,000 weekly lethal cases “is not where we want to be”.
Switzerland, Belgium, Germany, Great Britain have reintroduced mandatory quarantine for everyone who arrives in the country from overseas. The strictest restrictions are being put in place in England. Tighter rules have been introduced for public institutions and their opening hours, as well as for social gatherings of more than 6 people. In the retail and tourism sectors, the COVID-19 secure guidelines have become legal obligations. Businesses will be fined if they violate these new rules. The sharp rise in the number of people infected with the coronavirus in Europe has shaken the traders’ confidence in the global economic recovery.
As coronavirus cases rise, the issue of further stimulus measures to help the affected sectors cope with the consequences of the second wave of the pandemic has become relevant again. With that said, investors are paying particular attention to the Fed rhetoric on further stimulus measures to support the national economy.
Head of the US Federal Reserve Jerome Powell faced serious “questioning” from U.S. lawmakers this week regarding the Fed’s $ 600 billion Main Street lending program, established to support small and medium-sized businesses. The Fed chief noted that the Federal Reserve did everything they could to help Americans during the coronavirus pandemic and added that they were “looking to do more”.
Investors worry that the US economic recovery, which is entirely dependent on consumer activity and household expenditures, may slow down in the absence of additional fiscal stimulus from the Congress and the Fed. To recap, the unemployment benefits approved by Congress at the beginning of the pandemic expired at the end of July. In early September, businesses faced the consequences of money shortage and sluggish consumer activity, which triggered sell-offs in the stock market.
It’s worth noting that Congress may adopt a new stimulus package any time soon. Theoretically, this could have happened this week, but the lawmakers were busy fighting over the replacement for the deceased U.S. Supreme Court Justice. Congress will return to the issue of further stimulus measures later. If the US economy gets at least $ 1 trillion of additional liquidity, the bullish rally in the stock market may well resume. In this scenario, the S&P 500 will target its previous highs around 3600 points.