Can the stock market keep rising?

Concerns about the Covid-19 pandemic remain a significant factor across the world, influencing all markets from Australia to the USA. The situation is particularly difficult in the latter country, as the United States is seeing a sharp increase in the number of cases. America's foremost infectious diseases expert, Anthony Fauci, has even declared that the situation in the United States is “really not good”...

But the situation isn’t necessarily better elsewhere. 

With the number of new Covid-19 cases rising every day, some parts of the world are locking down again, such as Australia, Spain, and Portugal. Most analysts and market participants aren’t sure about how (and when) global economic growth will get back on track, which is probably going to trigger higher market volatility. 

For example, the European Commission recently lowered its forecast for Euro Zone growth: GDP is expected to contract by 8.7% in 2020, before bouncing back by 6.1% next year, which might impact European major indices. 

Economists at Goldman Sachs reduced their US GDP forecast for Q3 and lowered its growth projection for the year to -4.6% (from -4.2%), which might influence American indices.

While markets performed well recently, thanks to upbeat economic data and the hope of fast recovery in Europe or China, is it time to sell some of your (overvalued) assets?

Stock market trading volume has been rising since the fall of most indices, which bottomed out on March 23rd, where many traders and investors jumped in the markets to take advantage of lower market values, hoping to profit from future higher prices. Since then, many major indices have been rising - some even to their highest level ever. 

Many major indices reached a peak on June 8th/9th and lost ground since then, but now they’re back on track and close to their highest level since the big fall. But after such a big upward movement - and so many economic uncertainties, many traders are wondering how far the markets can go. 

How is it possible that within such an uncertain economic environment, some shares can still reach new highs? Well, one part of the answer is liquidity. 

As Central Banks around the world are injecting more and more new money into their economy to support their growth, some of this money will end up in the stock market, which pushes prices higher. According to JPMorgan Chase & Co., current (and future) global liquidity surges are playing an important role in boosting stocks and bond prices.

“‘Elevated cash holdings create strong background support for non-cash assets such as bonds and equities,’ the strategists [Nikolaos Panigirtzoglou] wrote. Given the current low level of bond yields, ‘most of this liquidity will eventually be deployed into equities as the need for precautionary savings subsides over time’” can we read on a Bloomberg article.

The American bank expects global debt to increase by $16 trillion in 2020, following exceptional measures adopted because of the Covid-19. This will push global debt (public and private) to a record $200 trillion. One important thing highlighted by the JP Morgan report is that the surge in global liquidity now is happening much faster than following the bankruptcy of Lehman Brothers in 2008.

Bad news does not seem to stop the markets from rising, as investors are seizing on any glimmers of good news about the pandemic and economic data. Worldwide monetary stimuli have also convinced investors that governments have their back, which keeps the stock market higher. Investors should, however, be cautious.