Why Markets Are Moving Higher

I am constantly asked how stocks can move higher in the face of all the terrible news we've seen since last winter.  I know we've discussed this before but I'll say it again.  Markets discount future action.  It's not that the present isn't important, but markets look towards the future and right now when investors look out into the new year here's what they see.  

First they see a world that slowly starts to inch its way back to whatever normal looks like in about six months after people start to get vaccinated for Covid.  There's going to come a time next year when enough folks have been vaccinated that we'll be able to open bars, restaurants, cruise lines sports arenas etc.  That plus the combination of all that money sitting in people's bank accounts is likely to cause a huge surge in consumer spending probably by next spring or early summer.

Second investors see for the most part political uncertainty removed from the equation for the next few years.  Mr. Biden is a known commodity to the markets and his early moves so far signal moderation.  That's something investors can live with.

Third you will likely have another stimulus package coming this winter along with further mediations in debt payments, rent and mortgage foreclosures etc.  This will keep liquidity in the system until the economy gets back on its feet.

Finally, and this is something you can't measure I think you're going to see increased optimism as the news on the virus front gets better next year.  You can't measure hope but a positive environment is something necessary for investors to feel comfortable holding equities.

Now as I've said before the news on Covid is going to be grim for the coming months. Infections and death tolls are going to continue to rise.  The weather in the north won't do any of us any favors until next spring.  But with the spring is going to come I believe a renewed sense that we've seen the worst of this thing and licked it.  Stocks think so to and that's why they continue to move higher.

PS as I'm writing this there's word on the wires of a 908 billion dollar bipartisan stimulus proposal being offered in the Senate.