Varney: Why we’re seeing the most 'explosive' market rally ever
Supply and demand is the backdrop of the rally
FOX Business’ Stuart Varney, in his latest “My Take,” argues supply and demand is the driving the market rally.
“Ten weeks ago on March 23, the Dow closed all the way down at 18,591. Today, the Dow is trading at 26,200,” Varney said. “That is a spectacular rally. The biggest gain ever in such a short time frame.”
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To explain this rally, Varney pointed to "TINA," which stands for "there is no alternative" to stocks.
“Bonds pay virtually nothing. A bank CD pays even less,” Varney said. “And the safety of a treasury comes at a price: the lowest interest payout ever. Gold coins? No interest at all! Oil? Who invests in oil futures contracts? Very few.”
Varney added that there are fewer publicly traded companies to invest in.
“In the 1990s, there were about 8,000 companies listed on American exchanges,” he said. “Today, it’s about 4,000. That's a whopping 50 percent cut! More than that, there are fewer shares available. Buybacks have taken 20 percent of shares off the market.”
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Varney said this means supply of shares has been cut, while demand is “vastly increased.”
"The markets are awash in cash: trillions from the Federal Reserve, hundreds of billions from 401k contributions,” Varney said. “Economics 101: Cut the supply. Increase the demand. The price goes up. That's the backdrop to the stock rally.”
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Varney believes psychology also plays a part in this.
People walk past a restaurant with “We Are Open” on its windows during the coronavirus disease (COVID-19) outbreak, in Washington, U.S. May 12, 2020. REUTERS/Jonathan Ernst - RC2BNG9MVJWY
“We have entered the return to work phase of the virus recovery. There are clear signs the economy is on the move again -- that fires up the animal spirits. Virus depression is giving way to the excitement of recovery,” Varney said. “TINA.... The short supply of public companies and stocks, trillions in stimulus and the urge to invest at a profit: all combine to give us the most explosive rally ever.”