over 3 years ago • 2 mins
The key US stock market index hit a record high this week. What a rush! 💥
Back in March, the S&P 500 – a key index of the US’s biggest public companies – collapsed into a “bear market” as investors braced themselves for the financial fallout caused by coronavirus. But ever since then, the promise that major central banks and governments would do whatever they could to prop up the economy – and, by extension, markets – has seen stock prices shoot past pre-pandemic levels.
This week’s new record might’ve been thanks to improvements in US coronavirus data, like case counts and hospitalizations 🦠 It might also have something to do with a falling US dollar versus other currencies: the drop not only makes US assets – like stocks – look cheaper to non-US buyers, it boosts the value of American companies’ international profits when they bring them home. And given that roughly half the biggest US companies’ profits come from overseas, it’s perhaps no surprise investors have been buying up their shares.
It’s true, a weak dollar might give the US economy – not just its stock market – a boost: foreign buyers might be more tempted to buy US products in the short term if they’re looking cheaper than before, which could boost the country’s trade balance 💵 But if the dollar is too weak for too long, investors might start to question the overall strength of the US economy and move their money out of the country altogether.
Analysts are still keenly aware of the risks that could derail US stocks. For one, coronavirus cases may spike in the winter. And for another, that pesky trade war might kick off again: the US has just canceled trade discussions with China, after all. Those looming dangers might be why Goldman Sachs reckons US stocks will only rise another 6% this year.
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