All Stocks, Bonds, and Commodities Rise Amid COVID-19-Induced Liquidity Expansion... Concerns Over 'Melt-up'

[Asia Economy Reporter Jeong Hyunjin] As the liquidity of funds has expanded due to the novel coronavirus infection (COVID-19) situation and investors' risk aversion sentiment has improved, all financial markets including stocks, bonds, and commodities are showing an upward trend. Since March, when COVID-19 began to spread in earnest in the U.S. and other countries, large tech stocks like Apple and precious metals have recently surged sharply, raising concerns that the market could enter a short-term overheating phase (melt-up).

According to the Wall Street Journal (WSJ) on the 26th (local time), the S&P 500 index and the S&P GSCI commodity index have each risen more than 25% since the end of March. During the same period, the Bloomberg Barclays U.S. bond index also increased by more than 3%. WSJ stated, "Stocks, bonds, and commodities are simultaneously showing the strongest four-month rise, indicating that the market is recovering amid this year's recession," adding, "If the upward trend continues until the last week of this month, it will be the first time since Dow Jones Market Data began in 1976 that all indicators rise for four consecutive months." This means that stocks, commodities, and bonds are all showing a prolonged simultaneous upward trend.

The reason the market is expanding is that investors, who had taken a cautious stance due to the spread of COVID-19, are injecting massive liquidity into the market. Confidence in government and central bank stimulus measures in the financial market has increased, and expectations for vaccine development are high. There is also a judgment that some companies will gain a kind of opportunity from the COVID-19 crisis. Investors who were skeptical about investing have changed their attitude, fueling the market's upward momentum.

Also, the fact that the U.S. Federal Reserve (Fed) is expected to maintain the 'zero (0)' interest rate for a long time is encouraging investments in commodities, bonds, and stocks. This is because holding cash could lead to losses if inflation occurs as a side effect of large-scale stimulus measures. The S&P 500 index reached its highest point in five months on the 22nd, narrowing the gap to 5% from the all-time high in February. Nela Richardson, investment strategist at U.S. securities firm Edward Jones, said that companies have recently reduced cash holdings and increased investments in speculative-grade corporate bonds, adding, "We are all in a situation of low (market) returns." According to Bloomberg, international silver prices have also risen more than 92% since the March low.

However, some express concerns that the rapid overall market rise is showing melt-up characteristics. They believe that if the ongoing COVID-19 situation faces a new shock, such investments could simultaneously plummet. Another concern is that the U.S. stock market's rise is concentrated only in some large tech stocks like Apple, Google, and Amazon. Christopher Stanton, Chief Investment Officer (CIO) of Sunrise Capital Partners, warned, "People are jumping on the train and looking for what to put in their portfolios by the billing date," adding that uncertainties remain that could reverse market sentiment, such as the November presidential election results and central bank policies.

This content was produced with the assistance of AI translation services.