I could tell you a story about how the stock market is divorced from reality, on an artificial Fed-induced sugar high while nearly twenty million people are still on jobless benefits. But what if the market is actually signaling that an economic boom is coming--and has been right about the rebound all along?
There was a great discussion about this on the Halftime Report yesterday, right after the Dow punched above 30,000 for the first time. More and more traders are talking about a looming redux of the Roaring Twenties. People continue to underestimate and/or misunderstand the stock market, said Josh Brown; "We could easily see Dow 100,000 in my lifetime," he added, just based on typical historical annual returns.
And let's not forget who's been buying this market since the lows: Main Street. It's the "Robinhood" phenomenon. It's all the waylaid sports betters that followed Dave Portnoy into the market. It's people spending some of their Covid stimulus checks. And it's quite simply the Average Joe investor. Add it all up and retail trading has doubled to 20% of trading volume this year, replacing the loss of corporate stock buybacks--and they've trounced hedge funds in performance. So it especially pains me when people use the shorthand "Wall Street" to refer to the market right now ("Wall Street at new highs today while Covid cases soar," etc.).
It was, in other words, Main Street that most believed in Main Street's comeback from this pandemic. "I'd be much more worried about Main Street if the stock market wasn't going up," said Leuthold strategist Jim Paulsen this summer after being asked about the "stock market-real economy divide" for the upteenth time. "The stock market and the economy move together," he said, "just not at the same time."
All of which is not--at all--to minimize the trauma people in this country are going through. It's to give hope. The unemployment rate has been plunging; it's dropped thirty times faster over the past six months than it did after the financial crisis, as Michael Darda of MKM Partners has noted. When Larry Kudlow said the unemployment rate could be back to single-digits by August, people rolled their eyes ("His optimistic outlook contrasts with remarks from several...Federal Reserve officials," Reuters reported); sure enough, it dropped to 8.4% that month from 10.2% in July. By last month it was down to 6.9%.
And now Darda--one of the first macro strategists to assert, while others kept repeating the "Great Depression" mantra, that the economy and stock market were rapidly recovering--is talking about an economic boom next year. I asked J.P. Morgan's Mike Feroli about that yesterday, when he was on to discuss their call for negative first-quarter GDP. "I don't disagree," he said, that the short-term setback from the spike in Covid cases and government restrictions will give way to a back-half, post-vaccine boom.
Keep in mind that even now there are over six million job openings in the U.S., and that demand for travel and live entertainment will come roaring back once the coast is clear--which, thanks to the vaccines, may be sooner than we feared just a few months ago. It doesn't excuse a lot of the shameful actions we've seen this year; permitting Walmart and Target to keep the non-essential areas of their stores open while refusing to give small shops the same privilege, for instance. Not aiding restaurants and small hotels quick enough; the impotence of the Fed's ironically named "Main Street Lending Program," etc.
And yes, the strongest parts of the stock market have been those areas where technology is reshaping the way we will live and work well beyond the pandemic. The tech-heavy Nasdaq is up 34% this year. Thirty-four percent! The S&P 500 is meanwhile up 12.5%, and the Dow "Industrials" are up just 5% by comparison. But even that has a bright side; as Ed Yardeni said yesterday, he expects the swift adoption of all these new technologies this year to lead to a productivity boom in the years to come that will boost growth while keeping inflation dormant.
As horrendous as this pandemic has been, there is plenty to be hopeful about and--at our diminished gatherings tomorrow--much to be grateful for.
See you at 1 p.m!