Is the united States’ confidence in its economic performance rising too quickly?

The US stock market recently reached a new high, indicating a recovery after the crash in March caused by COVID-19. Stock market indexes usually indicate the level of confidence professional investors have in an economy’s ability to grow and function properly; “confidence” within an economic context is an actor’s (a firm’s, an individual’s, a nation’s, etc) willingness to purchase goods and services as well as to conduct other economic activities. This optimism is in stark contrast to the current uncertainty in the US regarding the ongoing pandemic, furthered by the increasing anxiety surrounding the US elections in November. Moreover, the FTSE100 has not returned to a performance matching pre-pandemic levels, hence it leaves us wondering – where is this American confidence coming from?

This long-lasting economic confidence has fuelled the pre-pandemic US stock market (S&P 500) growth, but does not stem from domestic activity. Statements made by the president are regularly ignored, such as the suggestion that the tragic Beirut explosion was in fact an attack dismissed by all defence officials in the US. Recently there are growing concerns over the logistical issues of the coming US presidential election in November, especially after President Trump suggested ‘mail-in ballots are very dangerous – tremendous fraud is involved’. Furthermore, unemployment is on the rise again as states are still struggling to deal with controlling the spread of the virus and staying afloat. The performance of the US domestic economy does not provide much confidence for any investor considering the US as an option and so we must look abroad as to why stock markets are recovering well, despite conditions in the US.

In recent developments, Russia has claimed to have successfully produced the first working coronavirus vaccine, which is most likely what has caused this increase in the S&P 500. While not much is known about the vaccine, Russian president Vladimir Putin has stated it is entirely safe and one of his daughters has already received the vaccine.

News of a working vaccine is most likely what instigated confidence in the US. As one nation has successfully produced an effective vaccine, there is greater optimism that the US can formulate their own vaccine sooner or pay for a foreign vaccine, and thus return to normal life. However, there are concerns surrounding the Russian vaccine- the time in which it has been produced was incredibly quick, with researchers dosing themselves as part of the trials. Moreover, the stage three testing aspect of the vaccine has been skipped entirely, creating anxiety as to the safety of the vaccine, and whether it is suitable or mass vaccination without worrying side effects. In particular, there is the risk of the albeit rare phenomenon of immune enhancement, where the vaccine fails to protect a person from infection and instead makes the disease worse.

The current conditions thus cause us to question whether US investors have taken a leap of faith in America’s situation, economic and otherwise. If the Russian vaccine fails, there are supply based issues in delivering to the USA, or infection control efforts fail, the US may not see a significant sustained relaxation of existing COVID-19 restrictions. As a result, the American stock market may see an even sharper downfall than in March.

Overall, it may be too soon to tell if American investors are too optimistic towards the short-term future of America’s economy. However, as current domestic conditions provide anything but investor confidence, this outlook may not provide the economic returns it did before.

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