'The Hopefuls are Leading the Realists': Stocks Are Rising Again as Investors Bank on Back-to-Normal 2021

I’d say this is almost entirely fueled by the encouraging vaccine news, although forecasts of fourth-quarter GDP growth topping 6 percent can’t hurt either. We could conceivably end the year with our GDP back where it was before all this horror started, and that would be no small achievement.

It seems the nation is settling into two camps with respect to how we view 2021. One urges continued caution and wants people to believe we’ll need to live with the masks, the social distancing and the sparseness of life for awhile longer. The other says enough of this.

The latter group seems to be driving the market this morning:

The Dow Jones Industrial Average rose 0.2% in the first minutes of a shortened trading session in which markets are scheduled to close at 1 p.m. ET. The blue-chips index earlier this week breached the 30000 milestone for the first time in its history, before sliding lower Wednesday. Trading was suspended Thursday for the Thanksgiving holiday. Nasdaq rose 0.5% to 12157, a new intraday record. The S&P 500 ticked 0.3% higher, suggesting that the broad-market gauge may erase its tepid loss from Wednesday. The index had climbed to a record Tuesday.

Markets have been largely buoyant this week despite rising coronavirus infection levels across the U.S. and economic data pointing to a halting recovery that may curb consumer confidence. Investors appear to be looking ahead to next year, betting that Covid-19 vaccines will curb the pandemic and allow social and business activity to return to normal.

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“The hopefuls are leading the realists: they believe that the economy will return to an equilibrium with a high growth rate. They are looking beyond the shock,” said Sebastien Galy, a macro strategist at Nordea Asset Management. “It’s a matter of time though: there are still deep underlying issues with Covid spiking in the U.S.”

I believe the hopefuls are right, and it’s less about the virus completely subsiding than it is about a sense that the public simply won’t stand for much more of this.

When we first let the politicians lock us down and close our businesses, it was because we had a novel virus for which no one had any antibodies, and for which there was no vaccine. That’s why we accepted this was not, say, the flu. You can get shots for the flu. You have antibodies for the flu because it’s been around a long time. Some people will still get it, but just about everyone recovers and most of us have a core immunity that keeps it from becoming a societal crisis.

None of this was true of COVID-19, and when the hospitals started getting overwhelmed and there were no known treatments for it, it really did seem for a time that the only defense against it was to hunker down. It was bizarre to see businesses shut down, churches go to online-only services, restaurants to go take-out only and sports leagues shut down their operations entirely.

But no one had a better idea for how to protect people from this.

That will not be true in 2021. Vaccines will be available, even if it will be challenging in the early going to get them to everyone. We’ve also learned a lot in the past year about which treatments are effective for those who do test positive. And it’s no longer true that the population carries no antibodies, which is one reason it’s not crazy to believe many more of us have been infected than reported, and have been completely asymptomatic.

Finally, we’ve all seen the impact of the 2020 lockdowns and there is plenty of reason to believe that they did more damage than the vaccine would have in an alternate scenario where we exercised caution but still lived our lives.

I don’t think the public is overly concerned with the fact that we also added more than $2 trillion to the national debt because of this, but it should be.

So if the hopefuls are right, that is largely because of a sense that the public won’t tolerate more of this. Joe Biden may be taking over in the Oval Office, but the quickest way he could drive his approval rating to record low levels would be to “listen to the scientists” and try to enforce anything like a nationwide lockdown or even a national mask mandate.

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The public still takes the virus seriously, perhaps more so than the elites, because the public recognizes what we’ve learned and the progress we’ve made. The public sees that we need a better balance between caution and living our lives, and won’t accept when the elites try to tell us that’s not allowed.

That’s why this morning bull market probably reflects reality. I would say let’s hope so, but instead I’ll say this: Let’s make sure of it.