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Why the Stock market is rallying

Due to fears of the corona virus pandemic the stock market plummeted to never seen before lows. However by the first week of June the stock market rallied and gained over 38 percent of what it had lost.  Experts suggest that the stock market should be in tandem with the economy of the country, but that does not seem to happen. Even with the economy in doldrums the stock market continues to rally to new highs. The basic function of the stock market  for the 400 years that it has been around is to raise capital and provide an economic impetus to the businesses.


There are stock exchanges all over the world out of which the NSE being he largest companies of more than 21 trillion dollars in value listed.After the great depression countries around the world woes smaller retail investors to come forth and buy stocks. The idea to relate the happiness of the people to the stock market was profound and was sold to the public. As the stock market would rise people would get happier and buy more stock which would further increase the prices of the stocks. The stock prices were therefore  a measure of the psychological states of people more than the asset value. This theory applies even to the current situation. So  how people buying the stocks if there is no money in the economy and the businesses are not doing so well.


Governments are putting money into the hands of the people by introducing stimulus and bail out packages. Governments are spending money which they do not have. Assets owned by the country are being sod along with corporate and Government bonds. Governments are printing money thereby increasing the inflation levels  without having any assets to back the spending.


Indices which list technology companies have also seen a similar fate. The indices of these stocks only rallied when Government introduced a stimulus package even though these companies are the top contenders  for doing extremely well during the pandemic as tech companies have got the most boost during this crises. The reality seems however very different and poles apart.

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