The low interest rate environment, brought about to boost lending and household spending, is expected to stay for a few years. Almost all major central banks, including the US Fed, European Central Bank and Bank of England, have announced record low interest rates (some indicating a push towards negative territory) till 2021.
Investors tend to move towards riskier assets, like equities, in such climates, to increase long-term growth potential. Lower interest rates can give a boost to corporate profits, but other investment assets like US Treasuries and bonds suffer. Investors fleeing emerging markets see US and European stock indices as safe havens, just like they fled towards US Treasury Bonds in the 2008 financial crisis.
The current rally is also a case of massive liquidity-induced market rises. By the end of May 2020, the US Fed’s balance sheet had expanded by $3 trillion and at the same time, market capitalisation of the S&P 500 had jumped by $2.8 trillion. There has been a huge correlation between equity prices and the Fed’s balance sheet in the past months. Almost every other country has injected massive amount of liquidity into their economies in the past six months. As of July 8, stocks are surging, as investors hope for additional fiscal stimulus from the US government.