The stock rebound from the depths of pandemic despair is giving Wall Street the lesson of a lifetime on the sheer tenacity of cross-asset bulls.
As the investing world shifts from depression to V-shaped recovery bets, the pros look set to join the mom-and-pop rally that helped push the S&P 500 into positive territory for the year.
With the U.S. equity rally taking a breather in Tuesday trading, it’s time for a gut-check amid the pandemic without a cure as yet. Global stocks are on a tear, valuations are climbing, once-frozen funding conditions are thawing.
Investors are even rushing back into negative-yielding corporate debt in Europe, underscoring the fast recovery of this credit cycle.
It’s all a world away from the March 23 low, when investors fretted about an economic collapse with echoes of the Great Depression. As Ritholtz Wealth Management’s Michael Batnick tweeted, it’s recession to euphoria in under 100 days.
Here’s an overview of the market turnaround for clues on what’s next.
Stocks
Nowhere are animal spirits more on show than the stock market. Led by the rally in U.S. shares, the MSCI AC World Index has famously climbed more than 40% in just over two months. Investors are tuning out rising corporate leverage and an uncertain post-Covid business cycle to front-run the 2021 earnings cycle on the heels of record stimulus and re-opened economies.
In Europe, laggards such as retailers, cruise operators and airlines are finding favor as traders choose riskier stocks over tech havens.
In a sign of reviving animal spirits, value equities -- cheaper often because they are riskier -- just posted their best week versus low-volatility shares since the late 1990s.
In some respects, it’s almost as if the pandemic never happened. Take a blended measure of both trailing earnings and forecast estimates that straddles the crisis period on equal-weighted benchmarks, a metric favored by Leuthold Group. It’s climbed back toward pre-crisis levels across the U.S. and Europe.