November 18, 2020 - Published by IAG Wealth Partners

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Records 2

Traders have short memories and even shorter attention spans.

Just a couple of weeks ago they were wholeheartedly confused about the future, causing an inversion. Today their enthusiasm seems almost unjustified.

In the past week both the S&P 500 (U.S. large companies) and the Russell 2000 (U.S. small companies) have reached record highs. Small company stocks had not reached a new record high for over two years – since August 31, 2018. Large company stocks last set a record high on September 2 before electionitis set in.

How can traders be so upbeat when we are reaching record level of COVID hospitalizations,…

the number of COVID infections is compounding rapidly, and many state and local governments are imposing additional restrictions which caused an economic collapse in spring? Does Wall Street like to see people suffer?

No. Wall Street looks beyond today’s suffering and sees a brighter future in six months, and that future has changed in the last two weeks. The much-feared election results erased some uncertainty now that neither political party has the ability to make sweeping legislative changes. Two much-anticipated successful vaccine trials provide a potential timeline for people to return to their pre-pandemic lives and for the economy to blossom.

However, there is plenty of uncertainty that traders are currently ignoring in their joy.

Despite the election results, there is plenty of political posturing that will occur before the end of the year. Congress will likely make another attempt at a pandemic relief bill and the federal government is only funded through December 11. Either of these issues could create dramatic headlines while trying to work through a transition in power.

Despite successful trials, the large-scale global distribution of vaccines is still fraught with uncertainty. How will world leaders prioritize which countries and which people within those countries receive the first available vaccines? When do these new vaccines lose their efficacy and people will need to be revaccinated? At what point will enough people be vaccinated that most Americans feel confident enough to resume their “normal” lives?

While the last two weeks have moved traders’ mood from Startled to Thrilled according to our daily Market Mood Meter®, always keep in mind that enthusiasm can continue to compound on itself or turn to doubt in the flash of traders’ attention spans.


Quote of the week: Chinese proverb: “In the management of affairs, people constantly break down just when they are nearing a successful issue. If they took as much care at the end as at the beginning, they would not fail in their enterprises.”

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