CBS: “Surging Stock Market Reflects ‘Very Bright Outlook’ For Economy, Finance Prof Says”
I am quoted in this CBS article:
“The going up in the morning would be consistent with the results of the Georgia Senate election, which would indicate there’s more likely to be a larger stimulus bill coming soon for the economy, which the economy needs, and the stock market wants, and the vast majority of Americans want it and would benefit from it,” explains David Kass, clinical professor of finance at the Robert H. Smith School of Business at the University of Maryland.
“The stock market is forward-looking and always anticipates or discounts the future, looking at six, nine, 12 months into the future,” says Kass. “So the stock market is not reflecting the current situation, which at the end of March was very grim, very dismal, absolutely. But it was looking ahead. What will the economy look like next March, in March of 2021?”
“You have a combination of accommodative monetary policy, stimulative fiscal policy, and the vaccine,” says Kass.
Another factor also contributed to the stock market’s upward trend. According to Kass, “because people were at home, they were unable to spend the money on travel, tourism, entertainment, going to concerts, etc. The money effectively went into savings. You can’t spend it the way you normally would. And a lot of the savings went into investments. With interest rates being kept close to zero by the Federal Reserve, any investor trying to earn a positive rate of return, as virtually all investors will, what’s your next best alternative to a bank savings account or CD or Treasury note? And, of course, the best alternative, a very readily accessible alternative, is the stock market, investing in the market.”
The events of last Wednesday may have had a muting effect, but optimism for the future remains on the upswing. “It’s an attack on our democracy, our form of government,” as Kass describes it. “And what are the repercussions of that? That certainly would be a negative input, certainly adds an amount of risk to the current situation. But presumably, at least immediately, it doesn’t appear to have an immediate impact on corporate earnings or the economy, unless something gets a lot worse and gets out of hand, which is not likely.”
The upward trend in the market seems destined to continue for multiple reasons. “The Federal Reserve is promising this current benign environment,” says Kass. “The best of all possible worlds almost, low interest rates. And corporate earnings will be improving as the economy opens up again after the pandemic. They’ll have very positive earnings growth going forward. Technology has added a lot to the output of the economy. I think the outlook is very bright over the next two or three years, and the stock market, essentially, is reflecting it.”
President-elect Biden has signaled that another stimulus package is forthcoming, and he probably has the votes in the House and Senate to deliver. “The stock market and the economy would benefit greatly from that,” says Kass. “And I think it’s more likely that would occur in the near future.”
“I think the outlook [for the stock market] is very positive,” says Kass. “I’m very optimistic.”
