The belief that incentives will be adopted supports investors’ optimism

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As I was predicting last Friday, the ending week was positive for stock markets. This positive was supported by the surge in hopes that Republicans and Democrats would abandon the presidential race’s vested interests, pay attention to the harsh reality and decide on new stimulation measures.

Nancy Pelosi and Steven Mnuchin met twice and discussed the $ 2.2 trillion stimulus plan proposed by the Democrats. But neither the first nor the second meetings were successful. Trump’s decision shut down the second meeting. It triggered a strong sell-off in the US stocks on Tuesday. Still, on Wednesday, sentiment improved on the background of Donald Trump’s announcement that it is necessary to implement a phased introduction of stimulus measures. He also added that the airlines and everyone associated with them should get help. Even though the Democrats immediately blocked this initiative, investors’ hope was still high.

In general, the events of the week have demonstrated that neither side is ready to compromise in the face of a severe political struggle.

The question is: Why are the shares of US companies still growing? What is the reason and how long can it last?

I believe that the main reason is the investors’ belief that any candidate who wins the presidential elections will be forced to take new measures to support the Americans and the US economy, severely affected by the coronavirus pandemic. It means that in any case, it will be the most decisive supporting factor for the stock market.

The Fed’s tough stance on incentives, which believes that they are necessary, convinces the markets, setting them up for a positive outlook.

Thoughts and conclusions:

Let me notice that positive sentiments on the stock markets will only persist in a case of the elected president’s legitimization. If the losing side does not recognize the winner of the presidential race, this can generate great unrest among the population, affecting the demand for companies’ shares. Under these conditions, it will be difficult for the new president to come to terms with the political opponents in Congress.

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By Maksim FXbro