Has this giddy market front run all the stimulus, is the best outcome already priced in?

Is all the so-called good news already baked into stock prices?

I believe it is and then some!

Interestingly the major U.S. stock market indexes have reached record highs at the same time that Covid-19 cases and deaths in America have hit new records peak for deaths, and cases. Financial markets, of course, focus on the future (6-9 months out) rather than the present, and they are predicting vastly better days ahead in 2021, especially now that the vaccine will end the pandemic (if it works). One vaccine began to be administered this past week and, a second was approved Friday, bringing more hope for an end to the pandemic by mid-year in 2021. But they cannot immediately stop the massive rising toll of death and illness that threatens to outstrip the capacity of many hospitals in the U.S. to treat patients.

So-called market gurus being pranced about daily on CNBC are forecasting equity returns around 10% to 17% for 2021!

Strange....that these predictions of further advances from the fresh highs this past week in the major indexes DOW the SPX-500 and Nasdog, plus the previously lagging Russell-2000 index of small-capitalization stocks indicated extreme optimism and extreme optimism for 2021. Especially given how far these indexes have come from their lows in March, a gain of 63% for the Dow to 86% for the technology heavy Nasdog to over 100% for the Russell 2000.

Interest rates will remain low in the long term, money flowing into stocks will ensure that they trade up on ever higher multiples (almost all dips being bought immediately) and to generate returns playing the LONG side of the market I have had to take increasing risk, and this risk feels like a massive “bull” trap!

Interestingly professional fund managers responding to Bank of America’s latest survey appear to be all in. Cash holdings were down to a mere 4%, the lowest level of the year and the first time the respondents were so underweight cash since May 2013. Hopes for the Covid-19 vaccines led them into crowing into so-called “reopening trades” in consumer and commodity names. As for “crowded trades,” investing in technology stocks remained the biggest crowed trade in the Bank of America’s latest survey, followed by shorting the dollar and buying Bitcoin.

While the money-handling so-called pros have been moving out on the risk, spectrum to produce returns (and preserve their employment), the amateurs have gone full-tilt into trading especially in options they have been purchasing shares directly, as opposed to taking diversified positions in exchange-traded funds. Since the market’s liftoff in the spring, small options trader’s market activity has dwarfed that of large ones, options activity has skewed heavily to bullish call options over bearish puts since then. This massive structural shift in individual’s feverish trading chase indicates that “there is more than excessive optimism in the markets”.

With the benefit of zero-commission trading, it is now easy and cost less to trade, and the Covid-19 induced stay at home factor, have contributed mightily to 2020’s trading frenzy! So long as our markets continue to be boosted by extremely accommodative FED monetary policies and expectations of massive-massive fiscal measures, the dips are likely to be bought with vigor. The FEB this past week stated that they will continue their near-zero-rate policies and their securities purchases of at least $120 billion a month until it is satisfied that full employment is reached, and that inflation has topped its 2% target, making up for past blunders.

Depressed fixed income yields around the globe, with more than $18 trillion in bonds trading at negative yields, undergird all asset prices, including those of stocks.

Fed-head Powell, when asked about equity valuations at his press conference allowed that price/earnings multiples were on the high side, but added that the equity risk premium was not out of line, given low Treasury yields. As such this suggests that the extremely optimistic outlook for next year is already discounted in current stock prices.   The FED’s rate repression has not eliminated credit risk, but has invited massive and I mean massive borrowing at historically low rates,

 Bank’s recent survey of investors found what could be called possibly “the biggest consensus in history,” favoring U.S. equities, followed closely by emerging-market stocks. The 3-biggest risks respondents see are the virus mutating into a nasty strain that vaccines cannot stop; serious side effects emerging, as already seen in a few; and a substantial number of people refusing to take a vaccine. That does not imply widespread worries that the Covid-19 vaccines will fail. But it suggests that the markets already have largely discounted their success and the much-anticipated massive 2^nd half recovery.