Just Why Is The Stock Market Still Rising?

Parts of the U.S. have become de facto warzones while doctors worry about a second wave of COVID-19; so why is the market up today?

June is off to a good start on Wall Street as the Dow (NYSEARCA: DIA), S&P 500 (NYSEARCA: VOO), and Nasdaq (NYSEARCA: QQQ) all finished the first day of the month in the green. However, day 2 could be a different story as investors come to the realization of just how serious the situation in the U.S. is right now. 

As tensions between protestors and police boil over into violence on the streets, President Trump took to Twitter (NYSE: TWTR) on Monday night to announce that he will deploy the military if states and cities fail to quell the demonstrations. All the while the economy continues to suffer from business closures and job cuts, with unemployment reaching roughly 40 million since March. Clothing service Stitch Fix (NASDAQ: SFIX) became the latest to announce that it will be laying off 1,400 employees. 

So why did the market still rise?

Reopening the economy still brings hope

May finished up with back-to-back monthly gains for Wall Street but still failed to make up the devastating losses of March, which saw the market plummet from its February all-time highs. Investors will be hoping that reopening businesses in recent weeks will provide the economy with a lifeline. 

This lifeline appears to come at the expense of stay-at-home stocks such as Netflix (NASDAQ: NFLX), Shopify (NYSE: SHOP), and Peloton (NASDAQ: PTON), who saw share prices fall. After months of eye-watering acceleration, is this simply a sign of at-home stocks coming back down to earth? 

Perhaps, but investors should take the economy reopening with a pinch of salt, especially regarding recent bullish sentiment in the travel sector, which has seen the likes of Delta Airlines (NYSE: DAL), TripAdvisor (NASDAQ: TRIP), and even Carnival Cruises (NYSE: CCL) begin to rise once more — albeit nowhere near their February highs. Factors such as rising debts, revenue losses, and the fact that two-thirds of American’s will not travel for months even after the pandemic passes, have been factored in, but investors may be prematurely looking to post-pandemic times. It all points inevitably to another travel sector downturn.

And it’s not just the travel sector, but restaurants too. The Invesco Dynamic Leisure & Ent ETF (NYSEARCA: PEJ) rose 2.5% on Monday, and is up 18% in the last month, despite racking up devastating losses since March. Wall Street favorite Chipotle (NYSE: CMG) has risen 125% to return to pre-pandemic levels, while Starbucks (NASDAQ: SBUX), Texas Roadhouse (NASDAQ: TXRH), and more are also on the up. 

Are protest tensions affecting the market at all?

Mass protests over the killing of George Floyd, an unarmed black man, by Minneapolis police continued into their seventh night on Monday. As thousands are arrested and almost 70,000 National Guardsmen are deployed across the U.S. — the most ever at one time — it seems that Wall Street has largely remained untouched by the violence. 

Retailer Target (NYSE: TGT) has seen its stock drop slightly after suffering from a spate of looting last week but has otherwise remained up 44% on this time last year. 

There have been a couple of stocks that have actually soared due to the increased demand for security and law enforcement equipment. Wrap Technologies (NASDAQ: WRTC) saw its stock jump 20% on Monday. The company manufactures the ‘BolaWrap’, a device that is proven to successfully detain a subject without injury. Meanwhile, ShotSpotter (NASDAQ: SSTI), which makes gunshot detection software, rose close to 10% on Monday as law enforcement looks to alternatives in managing crime amid mass protests. 

Can this market rise continue? 

We are living in a time of unprecedented uncertainty, that is about the only thing that is clear. The coronavirus pandemic has thrown all forms of guidance up in the air until we can safely distribute a cure or vaccine, while the protests have added to the chaos. 

It has also given rise to a further debate that could threaten the future of Facebook (NASDAQ: FB), Twitter, Google (NASDAQ: GOOG), and other tech companies, as President Trump takes aim at removing their safety nets against liability for what users might post on their platforms. For more, read below: 

Whatever uncertainty the market brings, one thing that we can be sure of is that, historically, the market will continue to rise over a ten-year period. Despite fears over a possible recession and future viruses, the surest way to protect your assets is by investing smart and diversifying your portfolio. You can get all the information you need to do so here at MyWallSt.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.