Why stocks could keep going higher even with massive unrest across America

The great rotation continues, with some of the most down-trodden names leading the market higher: industrials, airlines, financial institutions, and energy companies. Powerful monetary and fiscal stimulus programs are keeping stocks aloft, as investors continue to shift funds to parts of the market they believe will be helped by economic reopenings.

So far, the market has not reacted to the violent protests that erupted all across the U.S. after the death of George Floyd in Minneapolis resulted in charges of third-degree murder against a police officer. Across the U.S., there has been looting on city streets and buildings have been destroyed, yet the stock market has ignored it.

Since credit markets seized up in February, the Fed has created program after program to keep the credit markets moving, including more funding in short-term lending markets, Treasury purchases, a commercial paper facility, a municipal bond program, and a plan to buy corporate bonds. The Fed had already cut rates to zero, and has promised to do whatever else is needed, even as it ballooned its balance sheet to $7.1 trillion.

With the Fed in the market, companies have already issued more than $1 trillion in new debt at twice the pace of last year, and at relatively low rates. That has enabled corporate America to restructure existing debt and build cash hoards to weather the downturn. Amazon, for instance, priced $10 billion in new debt Monday, including a 3-year bond with a 0.4% yield.

The unrest, which has resulted in damage in dozens of cities, has led some on Wall Street to draw parallels to 1968, a year of tumult. There were riots and protests in a divided America, and both civil rights leader Martin Luther King and Sen. Robert Kennedy, a presidential candidate, were assassinated. After a 9% drop for the S&P 500 from January to March, the market rallied 24% and ended 7.6% higher.

The S&P 500 ended Tuesday up 1% at 3,080 and has rallied 40% from the March low. The XRT SPDR S&P Retail ETF was just barely higher at the close but it had been up 1.8% in early trading, even though retail establishments have been looted and many have protectively closed in protest areas. The iconic Herald Square Macy’s flagship store in New York City was looted Monday. DeSanctis said the sector will have insured losses on some stores.

Airline stocks were up 1.6% amid continued optimism that people will increase travel as the economy opens up more and more. They are up over 13% over the past month but down 52% for the year. Commercial banks were up 2.4%.

Why stocks could keep going higher even with massive unrest across America, CNBC, Jun 3