By John Biers
Wall Street stock indices surged to fresh records Tuesday, while the dollar continued to swoon as the prospects for a new US fiscal package remained stuck in partisan purgatory.
The broad-based S&P 500 edged to its first record since February, joining the Nasdaq in scaling historic heights on a down day for leading European bourses and underscoring the recovery from March lows amid the coronavirus.
The results came after good housing data and strong earnings from big-box retailers Walmart and Home Depot, two essential stores that were allowed to sell goods throughout the pandemic.
Despite strength in some sectors, many analysts caution that the market is largely detached from the real state of the US economy and that Washington’s failure to reach a deal to support the coronavirus-battered economy is bound to catch up with the country.
Following the spring coronavirus closures — which prompted a major fall in stocks in March—- the economy has shown some signs of recovery, boosted by government aid spending.
But unemployment remains high and there have been numerous bankruptcies and layoffs amid major slowdowns in the tourism, retail and energy sectors.
Market watchers credit the stock rally to loose monetary policy and a series of massive fiscal spending packages.
However, Democrats and Republicans in Congress have hit a stalemate on new pandemic aid.
“A new high for the S&P 500… is always meaningful,” said JJ Kinahan of TD Ameritrade in a morning note hours before the record was lodged.
“However some might say that’s a little less true this because part of it remains, where else can people go to put their money? Low rates and lack of yield anywhere else has steered many people into stocks.”
THE BUCK BUCKLES
While the S&P 500 hit a record, the us dollar fell to its lowest level against the euro in more than two years.
“The state of political disarray is clearly weighing on the buck as the failure to produce more fiscal stimulus (and) the clearly partisan skirmishing over mail-in voting threaten to the undermine the credibility of the election, and are all taking their toll on the dollar,” said BK Asset Management’s Boris Schlossberg.
The Federal Reserve is scheduled to release meeting minutes Wednesday that are expected to further amplify an easy-money policy.
“The dollar continues to fall with investors expecting the Fed to maintain its expansionary monetary policy for a long time owing to concerns the persistence of COVID-19 will weigh on the economic recovery,” noted Fawad Razaqzada, market analyst with ThinkMarkets.
“The greenback is also suppressed because of the lack of (safe) haven demand for the reserve currency, with investors evidently favouring foreign currencies, gold and bitcoin,” he added.