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US Stock Market Continues Its Run at the Highs


Posted: Monday, July 20th, 2020

Estimated Reading Time: 2 minutes

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The US stock market indices continue their rally unabated, despite this being an election year. Historically, the US equity markets underperform in the months leading to the election data.

Until the scheduled November 2020 US Presidential election, there are only a few months left. After July, the market typically sets into summer trading mode – tight ranges, low volatility, nothing much to expect.

US Stock Market

 

This Time Is Different Due to COVID-19 Pandemic

However, this time may be different. The COVID-19 pandemic changed the world as we know it. Investors, therefore, changed their expectations too.

Moreover, a new generation of investors finds out for the first time what the stock market is and learn how to invest. Furthermore, fractional sharing gives any retail trader the opportunity to buy shares in a company whose shares would be inaccessible due to the higher price. Nowadays, brokers like Robinhood allow traders to invest as little as $1 in the shares of a company listed on the US stock exchanges.

As a consequence, investors flooded the stock market with new capital and ambition to profit from its swings. The pandemic lockdown conditions also influenced traders’ behavior. It meant that investors had more time on their hands to dedicate to trading, explaining the sudden jump in trading activity.

March 2020 saw the quickest drop from a bullish to a bearish market in the equity markets’ history. Investors trading on margin suddenly were required to come up with additional funds or face margin calls. Some of them did and missed the subsequent rally.

The Nasdaq 100 index is just an example of the rally that followed. As central banks around the world eased monetary conditions and governments expanded the fiscal policy, money poured into the financial markets at unprecedented levels.

Before you know it, Nasdaq 100 reached new all-time highs. Companies like Tesla soared dramatically, pumped up by frantic investors cheering the company beating its Q1 2020 EPS.

Record Retail Trading Accounts Opening at Schwab

Dow Jones and the S&P500 also recovered most of their March 2020 losses. While not posting new all-time highs, they are close to being green on the year – a remarkable performance considering the meltdown earlier in the year.

Such market behavior is unusual during an election year. Maybe the market participants’ enthusiasm will dissipate in the months ahead, with investors remaining on the sidelines until the elections pass.

But if we look at the recent data posted by Schwab, there’s no slowdown in sight. The brokerage house reported a massive increase in the retail account numbers – more than the six previous quarters combined.

If that is the case, the stock market frenzy will continue, with or without the US Presidential election.

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