Does anyone know why the stock market went up yesterday?
The stock market was closed yesterday.
“Analysts” say it was because the number of Covid-19 cases started to peak. But I don't think that makes any sense - the social distancing measures that have paralysed the economy have resulted in the figures peaking, but those same measures have to be maintained indefinitely in order to keep the numbers down. So to me, the economy is in a stalemate against the virus. Open up and cases start making money again but cases rise (meaning inevitable reinstatement of quarantine measures). Continue quarantine measures and the economy continues to sink. The only thi ng that will stop this is herd immunity, effective treatment or a vaccine. So... why did stocks go up?
There are three possibilities here...
1:
The indications that the cases are peaking in European countries hard hit by the virus change the expectations. Prior to this a longer lockdown period was priced in, and now there is an increase in expectations that the lockdown period will be shorter than previously expected.
This doesn't mean that people are now expecting that things will be back to normal in a week or even a month, but rather that some portion of market participants think it will be shorter than they previously did. Since on a macro level the market level is the present value of future earnings, if earnings start up sooner the present value is higher.
2:
This has nothing at all to do with the news about new coronavirus cases, but is in response to something completely different such as a reduced need for liquidity by market players, people closing their short positions (which entails a round of buying), a large number of investors deciding to reallocate into stocks over the weekend, etc.
3:
A combination of 1 and 2.