The economy is still reeling from the impact of COVID-19 lockdowns, while mass demonstrations — which may contribute to a resurgence of the same outbreak that locked down nearly every country on the face of the Earth — are splintering an already polarized electorate.
Yet investors, doing their best impression of the notorious honey-badger that went viral nearly a decade ago, simply don’t seem to care.
Back in March, panic-driven selling sent Wall Street swan-diving into a bear market that obliterated the Trump-era gains. And until very recently, investors have struggled to price in an unprecedented economic calamity — one that’s still unfolding — unleashed by the coronavirus pandemic.
Fast forward a few months, and the S&P 500 (^GSPC) Index is now up around 40% from its 2020 lows, a curious state of affairs given the charged scenes of protesters in the streets of nearly every major U.S. city who are railing against police brutality and racism. So what gives?
“The market right now is an amoral entity, and respects the plight of racial and socioeconomic injustices,” Ben Koltun, a senior research analyst at Beacon Policy Advisors, told Yahoo Finance in an interview. He evoked the specter of 1968, roiled as it was by two political assassinations, the Vietnam war and a lack of trust in the government.
Koltun’s assessment might make Ayn Rand — the polarizing philosopher and patron saint of capitalism, who argued forcefully and unapologetically on the inherent morality of free markets — blanch if she were still alive, or roll over in her grave.
However, the current price action is less of an indictment on the morality of investors, and more of a calculated gamble that the economy is poised to rebound as lockdowns end, even as civil unrest reverberates around the country.
“I don't think the market sees the protests as an economic issue, but more of a moral and political event,” Koltun said, even though the pandemic and the resulting recession are wild cards.
Markets have also been underpinned by a shift toward stalwarts whose operations have been bolstered by the pandemic. In the midst of the lockdowns, a clutch of reliable names have emerged as beneficiaries of the new normal — among them Amazon (AMZN), Zoom (ZOOM) and Walmart (WMT), a brick-and-mortar retailer that’s seen a surge in online buying as lockdowns took effect.
“A closer look at the markets shows the upswing is being fueled by a handful of companies that reflect the ‘new world,’ which is increasingly tech-driven,” Nigel Green, chief executive and founder of deVere Group, said this week. Eventually, investors could get burned as money accumulates in a handful of big winners, he said.
However, he added, “The world has been ‘reset’ and as it readjusts, we will see new industries, new trends and new highly successful companies emerge – and probably quicker than many might expect.”
The ‘hall pass theory’
While theories abound, one theme remains dominant: According to a growing number of analysts, investors are pricing in a “near perfect resolution” to the COVID-19 crisis, State Street Global Advisors chief investment strategist Michael Arone, told Yahoo Finance this week.
“Investors are looking beyond the current environment and they’re looking at the fact that policymakers have put forward a firm commitment to do what it takes ... and they’re expecting recovery,” Arone said, even as current market psychology looks like “a head-scratcher” to some.
“There are a number of risks on the horizon but ... if you believe that on the other side of the pandemic, we’ll return to some element of economic growth with very low rates, benign inflation and ... incredible support in both fiscal and monetary policy, that has historically been a very strong backdrop” for markets, he added.
It’s a dynamic that veteran market watcher Peter Boockvar at Bleakley Advisory Group called a “hall pass theory” that minimizes the impact of virtually every endogenous and exogenous event, be it domestic unrest or rising geopolitical tensions.
Boockvar added that “as long as businesses are reopening and the virus spread remains contained, that will be the main focus rather than the pace of economic growth. The analysis on economic activity will come in July/August after most things have reopened. Also, valuations don't matter until they do.”
Javier David is an editor for Yahoo Finance. Follow him on Twitter: @TeflonGeek