12|08|2020

The Face of Irrational Exuberance | December 4, 2020

Markets grew again last week in the face of mounting COVID cases. Are markets exhibiting irrational exuberance?

Monday

The week started with vaccine news as Moderna announced they are applying for emergency use approval from the FDA. An approval they expect by mid-December. The major difference this week is a market retreat rather than a rally. Likely, the retreat had more to do with the strength of November, rather than data about the vaccine. Prior to Monday markets had risen 9.9% on the month, so profit pulling was likely in order.

Tuesday

Markets jumped on Tuesday morning, led by the Nasdaq, a change as of late. The optimism seemed to be based on stimulus hopes rather than vaccine data. This news was likely what helped the Nasdaq outpace the S&P 500.

Wednesday

Stocks started the day deep in the red as payroll data disappointed for November. The markets quickly came back to even on more vaccine news. New York announced they expect to have doses of the Pfizer vaccine available by 12/15, assuming FDA approval.

Thursday

Markets were flat on Thursday. Optimism on the day was led by Boeing as they completed a deal with Ryanair. This was meaningful as it was the first large order of 737 Max’s since the FAA lifted restricts. Additionally, initial unemployment claims came in lower than projected. A good thing, as next week will likely see a climb in claims with the ongoing stay at home orders.

Friday

Jobs data was mixed as less jobs were created than expected, however the jobless rate fell more than expected. Optimism over a potential stop gap stimulus package ruled the day. This sent markets to fresh highs closing the day up 0.88% on the S&P 500.

Conclusion

The S&P 500 climbed 1.67% last week. This may seem disconnected with the reality of current stay at home orders and job losses. This begs the question of if we are seeing irrational exuberance. The phrase coined by Alan Greenspan to denote market growth with no regard for reality. The markets are pinning their hopes on a future with stimulus and vaccines, rather than today’s realities. The growth is founded assuming we see the vaccine and stimulus results the markets are baking in…

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