The US Federal Reserve recently presented its changed stance regarding average inflation targeting. For now, it looks as though the low interest rate environment will continue for a long time, which would be positive for the stock market. When interest rates fall, other forms of investments, such as currencies and bonds, become less appealing, pushing investors towards riskier assets, like stocks. Higher demand for stocks influences capital inflows to the equity market, pushing stock prices higher.
The technology sector, in particular, benefits from a dovish environment. Tech stocks usually carry less debt than economically sensitive stocks like manufacturing, mining and energy. They also do not rely solely on domestic consumption. So, when investors find it hard to see growth in other sectors, tech stocks become appealing.
With the rising Covid-19 cases in the US, economic recovery projections are grim. Plus, earnings estimates are being cut and rising fiscal deficits and low interest rates are pushing the US Dollar downwards. In such a climate, bitcoin and forex traders could concentrate on companies which are expected to grow, irrespective of the economic situation. This is a strong reason why the Nasdaq could continue to rise.
However, some investors are also concerned about the soaring valuations of some tech companies, considering that they have grown so much in a short period of time. The CBOE volatility index (VIX) remained higher than its historical average of 19.40 for a period of 131 days, till the end of August. Such a long period of elevated levels usually precedes big stock market sell offs.
Whether trading bitcoin, forex or stocks, risk management practices are essential in this Covid-19 induced market climate.