A) The stock market started the second half of 2020 strongly as the economies are reopening and medical news are fluctuating.
B) The markets are clearly linked to the COVID-19 statistics.
C) Liquidity provided by the FED, ECB, and Fiscal Policy are very supportive.
You do not want to find these institutions !
D) stock prices should represent the present values of the future stream of earnings of the specific investments :
- earnings will be lower for 2020 but investors are looking beyond this number. There are plenty of future earnings to be discounted ! As a result we disagree with the argument that the stock market and the economy are disconnected.
- The interest rates to discount future earnings are very low and thus present values of earnings are high.
E) From a different angle, future E/P are much higher than corresponding interest rates (The earnings yield is much higher than bond yields).
F) The dividend yields are also still higher than coupon yields.
G) European Monetary Policy, Fiscal Policy (what a surprise!) and Medical news are positive.
F) The consensus of market participants is rather pessimistic which is a bullish sign. Cash appears to be on the sidelines.
In a dynamic world we have evolutions on all of the above and of course an influx of news that can change the picture. However, at present my view is still optimistic on equity markets. Geography and sectors will evidently diverge in performance.