December 18, 2020

The Other Great Reset

The week began with the broad markets still strong despite overbought conditions and collective uncertainties, and that’s where things get interesting. For much of the year the socioeconomic conditions went from deeply recessive to not so deeply recessive. To bring us to this condition there was a lot of Fed activity and government money at the beginning of the pandemic. This was met with widespread consumer activity both on and off the internet. All which leaves us today with the resumption of unemployment, positive testing and a stingy government. But now comes the vaccine, and suddenly, the Fed announces its intention to keep interest rates low until 2023, and the houses of government seem genuinely interested in bringing a stimulus package before the end of the year. The kind of triple play that the markets love, to defend against a weak economy and keep it on track to win. But at what price?


Pretty optimistic perhaps, but in many respects the growth of the broad indexes has been reasonably even given the fluctuating cause and effect of the pandemics impact on the economy. The Nasdaq, and its big tech components had, and has, a place in our economy that has never been more widely confirmed. The S&P 500 had been held back due to sharp declines in the leisure and restaurant sector of the economy that is directly controlled at the consumers discretion. Once the vaccine was introduced by Pfizer (PFE) and another coming any day from Moderna (MRNA) the growing confidence that normal, new or otherwise, is closer at hand than it’s been all year. That’s the setting, and the investor commotion, namely the army of Pindudes trading the new IPO’s and other high-risk stocks, have created an atmosphere of concern that fundamentals are being ignored, or even being in their own atmosphere of great reset. The latter suggesting that today ‘s P/E of 30 is yesterday’s P/E of 20 times earnings. This remains to be further tested. For now, the economic conditions exist to see some light consolidation, to further work off the overbought technicals and enough cash watching eagerly on the sidelines, and fund purchases, otherwise referred to as window dressing, all enough to push the broad indexes, in my opinion, to trend higher into the year end.


The Fed wants to keep interest rates low, but those pesky bonds aren’t listening, and I’m not confident they will. Much of the Feds recent speech focused on rates rather than inflation, the focus of previous statements by the Fed Chair. This is most likely because of economic moderation, as seen in Retail Sales for November coming in at -1.1% and a stable but not declining number of unemployment claims. Both of which could also keep inflation in check for the foreseeable future. 

External Events

In the spirit of hope, the 900+ billion-dollar stimulus package should be coming in time for Christmas, but of course not without a lingering scent of disagreement. The vaccine will also continue to be met with a disconcerting media. In my opinion all of this creates a distraction, while the markets focus on companies with strong balance sheets and the potential to become giants in the broad changes that have taken place in the consumer economy. For now, if Washington gets their act together, the vaccine distribution speeds to expectations and interest rates behave, our collective patience will pay off. 


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