News And Hope Lead The Way

We went from a meaningful pullback last week to a surging rally Monday on the heels of positive headlines.  The market less and less resembles the stark reality of the economy or country.  This juxtaposition should dove tail over time as the duration of the recovery elongates.  The bear market rally the past 6 weeks is firmly based on two interventions; stimulus and the hope that the economy will open back up.  The surging rally Monday was based on the headline that a vaccine trial is showing promising signs.  We believe the only way this country will truly return to normal will be when this country has that vaccine.  Investors however are eager to see the market recover.  Any hint that the economy will open back up and return to normal jumps the stock market for the day.  We are skeptical about the economy and believe the recovery will take years.  However, with the market and the economy divorced from each other’s reality, where the market goes from here becomes even more uncertain.  During the recovery not all sectors will perform well.  This means the investors will crowd around the companies doing will, which will lead to relative over performance.  The investable universe had already narrowed over the past decade.  While the recovery drags on and more companies succumb to the economic pressure, look to see it narrow further.