TUCSON, Ariz. (KOLD News 13) - Chris Lamoureux, Diamond Professor in Finance at the University of Arizona’s Eller College of Management says that while the S&P 500 stands at a record high, it appears to be inconsistent with U.S. and global economies that are impacted by the effects of COVID-19.
In response to the virus, Professor Lamoureux says the world’s central banks have lowered short-term rates and long-term demographic factors have resulted in a large pool of savings capital.
“This raises the specter of ‘asset inflation,’” Professor Lamoureux says. “While the monetary and fiscal stimulus is meant to boost lower income households and consumption, much of it affects asset values. We can see this because when the Federal Reserve hints that it may be ‘less accommodating,’ stock prices fall.”
Stock prices are forward looking and the current pandemic, despite its tragic effects on lives, has not adversely impacted infrastructure, despite the uncertainty created by the pandemic. Consumer spending in the U.S. has not declined. On Aug. 19, Bloomberg/Business Week revealed that Walmart, Amazon, Home Depot, Lowe’s and Target all reported revenues for the second quarter 2020 that exceeded 2019 levels and all forecasts.
Overall, Professor Lamoureux summarizes, “The bottom line is that there are not a lot of good options for savers right now. The 30-year U.S. Treasury bond yield is 1.37%, and U.S. equities benefit from the lack of alternatives. It is also a time of heightened risk.”