This week’s run-up in U.S. stocks toward their highest levels on record seems an anomaly, considering the political breakdown over a $1 trillion-plus fiscal stimulus package, and it’s spurring concerns from Wall Street to Capitol Hill.
Federal Reserve officials and private economists alike have emphasized that a sharp drop-off in government spending imperils a recovery from the historic collapse in gross domestic product last quarter. But the impasse between Republican and Democratic negotiators over renewed coronavirus relief proved no bar to the S&P 500 Index notching a third straight week of gains.
Explanations for the disconnect abound, from an easy Fed and reliance on a small handful of big-cap shares driving gains to unilateral income-support moves by President Donald Trump. And the advance has provoked two key different sources of unease.
Some fund managers warn the rally makes the market more vulnerable to a sharp selloff if traders suddenly priced in “no deal.” While in Washington, there’s angst that the equity gains have removed what might have been a pressure point for the two sides to negotiate.
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