Question

Please summarize the article/event, comment on how it applies to the real-world and Financial Management issues. 200-250 words.

ARTICLE

Stocks Climb to Highest Level Since Early September

U.S. stocks edged higher Thursday, climbing to their highest levels since early September.

Investors have remained cautiously optimistic that Congress will reach an agreement on fiscal stimulus measures aimed at parts of the economy, though there are few indications an agreement could be reached before Election Day. “It’s still all about stimulus at this point: we’re seeing markets move on optimism that some kind of package is going to get done,” said Esty Dwek, head of global market strategy at Natixis Investment Managers. “It’s just a question of how much the Republicans will agree to.” The S&P 500 rose 27.38 points, or 0.8%, to 3446.83, pushing the broad-market index to its highest level since Sept. 3. The Dow Jones Industrial Average climbed 122.05 points, or 0.4%, to 28425.51, and the tech-heavy Nasdaq Composite advanced 56.38 points, or 0.5%, to 11420.98.

President Trump made encouraging comments Thursday on Fox Business Network and earlier this week tweeted his support for individual spending packages aimed at small business, airlines and delivering checks to households.

Discussions appear to remain ongoing, though Republicans and Democrats remain at odds over crucial details.

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke briefly Wednesday about a stand-alone stimulus bill for the airline industry, sending carriers’ stocks higher. On Thursday, Mrs. Pelosi signaled she wouldn’t support such a bill without a broader coronavirus aid package.

Applications for jobless benefits last week remained elevated at 840,000, slightly higher than economists’ expectations for 825,000, reflecting a slow pace of recovery in the labor market. This metric remains historically high, despite dropping sharply from a peak of near 7 million in March. “These are still high in the grand scheme of things. They’ve stabilized over the course of the last few months, but they’re also not really going down,” said Peter Dixon, an economist at Commerzbank. That will likely put additional pressure on Congress to agree on a package of coronavirus-relief measures, he said. Meanwhile, the market’s continued rise has made some investors nervous that speculative buying has pushed stocks to expensive levels, putting them at risk for a reversal even if the economy continues to improve.

“We spend half our time right now telling people how dangerous things are,” said Cole Smead, president and portfolio manager at Smead Capital Management, a value-investing firm.

Thursday’s rise was led by energy companies. The S&P 500 energy sector gained 3.8%. Oil prices climbed on the prospect of a boost to U.S. growth, with the U.S. crude benchmark adding 3.1% to $41.19 a barrel. Shares of IBM IBM -0.45% gained $7.42, or 6%, to $131.49 after it said that it was spinning off its managed infrastructure services unit into a new public company as part of a strategy to build up its cloud computing business. Regeneron Pharmaceuticals REGN -0.09% shares rose $8.19, or 1.4%, to $599.88, after Mr. Trump said an experimental coronavirus treatment made by the company was key to his recovery. A spokeswoman for the drugmaker on Wednesday said Regeneron has applied to the Food and Drug Administration for emergency-use authorization for its experimental treatment. Shares of Eli Lilly, another drugmaker mentioned by the president in a Wednesday evening video posted on Twitter, TWTR 5.12% climbed $4.54, or 3%, to $153.50. Shares of Eaton Vance surged $19.71, or 48%, to $60.65 after Morgan Stanley said it was buying the fund manager for $7 billion. Morgan Stanley, which is pushing further into the money management business, rose 29 cents, or 0.6%, to $49.

After a massive run in shares of the largest U.S. companies, some investors say they believe that smaller firms are poised to outperform. The small-cap Russell 2000 Index has risen 8% so far this month, more than triple the rise of the S&P 500. Attractive valuations and expectations of higher inflation may boost them further, according to Doug Ramsey, chief investment officer at the Leuthold Group. “Generally when small and mid caps start to outperform, it’s a multi-year cycle,” he said. Overseas, the pan-continental Stoxx Europe 600 rose 0.8%. In Asia, most major benchmark stock indexes gained. Hong Kong’s Hang Seng Index was an exception, slipping 0.2%. That followed reports that the Trump administration is discussing potential curbs to digital payments platforms developed by Chinese tech companies Tencent Holdings and Ant Group on the grounds of national security. Markets in mainland China remain closed for a holiday.

Answer 1

According to the article the market surged ahead led by the agreement on fiscal stimulus measures. Several indices advanced ahead with fiscal measures focused on small businesses, airlines and households. Even though the unemployment rate has remained stubbornly high. There is fear that market might be rising due to speculative buying and that the stocks might fall even when the economy is improving. It has been stated that smaller firms are expected to outperform.

Thus it applies significantly to the real world where based on the macroeconomic conditions of providing relief to the stressed sectors, the market is expecting the future growth to pick up and grow led by US domestic growth and easing of lockdown measures. People will invest more in stocks and other high return bearing instruments as interest rates have fallen drastically on bank saving accounts. It could also mean that people start to invest more in risky assets where there are higher returns and thus when the stock prices fall, these investors could face losses.

There are several financial management issues where the stock prices could fall drastically as the cases might rise going ahead and as everything is uncertain regarding drug formulations being accepted by the Food and drug administration, the stocks of such companies could be highly overvalued with price to earnings ratio drastically higher.