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2 Key Things Investors Missed in the Stock Market Rally This Week

2 Key Things Investors Missed in the Stock Market Rally This Week

Friday closed the week on a positive note for the stock market, with market participants seeing no reason to curb their enthusiasm about the future. With Washington politicians once more getting close to making a deal for more economic support, and with most investors perfectly willing to shrug off what’s been a significant uptick in COVID-19 cases in many states across the nation, stocks added nice gains to their advance from Monday to Thursday. With today’s gains, the Dow Jones Industrial Average (DJINDICES: ^DJI) and S&P 500 (SNPINDEX: ^GSPC) were up between 3% and 4% for the week, while the Nasdaq Composite fared best of all, rising more than 4.5% since Oct. 2.

Today’s stock market

Index

Percentage Change

Point Change

Dow

+0.57%

+161

S&P 500

+0.88%

+30

Nasdaq Composite

+1.39%

+159

Data source: Yahoo! Finance.

Looking at stocks, everything appears to be going perfectly for investors. But to understand everything that’s going on with the investment world, you sometimes have to go beyond the stock market. This week, there were a couple of noteworthy events in other financial markets that were worth the notice of those who concentrate on equities.

A big rate rise

Even as stock markets moved higher, it was a different story for the bond market. Monday’s stock market gains sent bond prices plunging, with the 30-year Treasury falling by about 2%. By the end of the week, rates had risen from 1.49% the week before to 1.57% on Friday.

That might not seem like much, but it was enough to send some big bond ETFs down. iShares 20+ Year Treasury (NASDAQ: TLT) ended the week with a nearly 2% drop, while some shorter-term Treasury funds saw slightly smaller declines.

Perhaps more importantly, it was one of the first times in a long while that the

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The Covid Crisis Exposed What Financial Reformers Missed

The Covid Crisis Exposed What Financial Reformers Missed

(Bloomberg Opinion) — After the U.S. financial system came to the brink of collapse in 2008, Congress and regulators spent years on renovations designed to prevent that from ever happening again. More than six months into a global pandemic that has delivered another monumental shock, it’s worth asking: Were the reforms successful and sufficient?



a sign on the side of a building: Weak link.


© Photographer: Zach Gibson/Bloomberg
Weak link.

The answer depends on what part of the financial system you’re looking at. Traditional banks have fared pretty well. The rest, not so much.

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Regulators did a lot to make the core banking system more resilient. They increased requirements for loss-absorbing capital, and for the liquid assets needed to meet obligations in a crisis. They established stress tests designed to ensure that banks can survive a severe economic or financial shock. These changes neither throttled credit nor choked the economy, as opponents warned they would do. Rather, the costs were shared broadly — among shareholders (in the form of lower profits), bank executives (lower pay), borrowers (slightly higher interest rates) and savers (slightly lower deposit rates). Meanwhile, the U.S. experienced the longest economic expansion in its history.

Now we’re reaping the benefits, as the banking system sustains lending amid an extraordinary economic shock. Rather than amplifying distress, as it did during the 2008 crisis, it has absorbed and cushioned the shock. It has kept performing the crucial functions of intermediating between savers and borrowers, and of helping businesses manage financial risks.  

Yet outside the banking system — in the realm of specialized lenders, hedge funds and money market mutual funds — reforms have proven inadequate. That’s why the Federal Reserve had to go to extraordinary lengths to intervene in financial markets, in order to support such non-bank institutions. It pledged trillions of dollars to, among other things, help

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