Crashes in the stock market do happen. One of the signs of a stock market collapse can arrive as early as the end of this month when the U.S. job insurance plan expires. The second stimulus is currently being debated at Congress, so a positive result before the deadline is doubtful. That’s because Democrats and Republicans are in a state of impasse.
Negotiations tend to be going nowhere. The latest rally on the corona virus stock exchange has been dubbed the most hated stock-market rally in the financial trading past. Given the impressive rise we’ve seen from the U.S. stock market, speculators expect this stock market rise would collapse until it runs out of fuel; in other words, when it runs out of support from fiscal and monetary policies.
So far, most Wall Street stock has been meeting its forecasts in terms of the earnings season. Another keen message businesses have so far been stating is that while the worst could be behind us, the future is still unpredictable. This uncertainty signals a more extended recovery period for the U.S. economy, U.S. labor force, and consumer spending. It might all cause yet another stock market crash.
Geopolitical tensions are on the rise between the U.S. and China, and there are no indications that either side will back down. Trump administration is seeking to bring leverage to bear on China. Beijing wants the U.S. to realize that China has the world’s second-biggest economy, and the U.S. is not always free to get its way. The message is clear; China doesn’t want to sit still and do nothing. When these tensions begin to intensify, there is a good likelihood that it will cause a stock-market crash, which mitigation steps do not cover. The game is up as the new capital goes straight into this financial asset bubble that spirals out of control.
The Federal Reserve previously sponsored the stock market crash through its loose monetary policy. The Fed has started buying corporate bonds this time — something the Fed has never done before. That intervention by the Fed has rescued that stock market collapse, but now there’s just one bullet left — apart keeping the interest rate below zero is purchasing stocks the same way it did for U.S. corporate bonds.
The Federal Reserve wants to keep a grip on this quickly, and it seems to be trying to taper its balance sheet, but the bubble is still fizzing, and if it doesn’t stop soon, it will merely do what bubbles do, and then it will burst. It looks like the last eruption before the collapse occurs, and we can hope it doesn’t happen. When it reaches the terminal bubble process and collapses, it will be the second blow to the U.S. and world economy, continuing the one-two punch of twin crises of 1930. The Great Depression was “stock market collapse,” followed by a “bank crisis.” “Lockdown,” followed by “stock market crash” would follow here.
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