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Riots, disease, joblessness, widespread despair — and the S&P 500 just closed the books on its best 50-session stretch ever. Make sense? Doesn’t even have to anymore?
“The enthusiasm in markets at the moment is bordering on euphoria,” ForexLive analyst Adam Button wrote in a note Thursday. “Retail money is pouring into the flavor-of-the-day and now FOMO is taking over more broadly. You have to decide if you’re in or out.”
He explained that while the risks are rather obvious, “betting on humanity has been the best bet in world history.” And he gave three reasons why he believes that will remain true.
We’re in a post-pandemic world
Sure, the numbers continue to be troubling but the reopening of the American economy is well underway and there’s a hunger for a return to normalcy that won’t be easily sated.
“Naturally, you need to watch the data as they’re reporting but at this point it’s going to take a significant spike to reverse the sentiment on the virus,” Button said.
Fiscal conservatism is dead
Button said fiscal conservatism is dead and the death blow came in March when the pandemic hit and now the U.S. Treasury is looking at a budget deficit that could reach $8 trillion this year.
“This is a wholesale generational secular change that is far more important than the virus,” he explained. “Deficits don’t matter anymore. Obviously there is no free lunch but fiscal conservatism doesn’t win elections anymore. So why not another $8 trillion deficit next year? What’s possible in the economy when government spending is unlimited?”
The reckoning will come in the form of currency debasement, Button said, which will ultimately be the driving reason the S&P SPX, -0.33% pushes past the 6,000 level.
“I think this will go on far longer than almost anyone believes,” he added. “I think it will define the decade as huge deficits everywhere become the new normal.”
Low interest rates forever
There’s a revolution in central banking too — a paradigm shift — and that means zero interest rates aren’t going anywhere for the foreseeable future, Button wrote.
“Central banks spent the last decade forecasting inflation that never came. They hiked rates in anticipation of it coming or because they wanted a return to ‘normal,” he said. “The failure of the policy and forecasts was a constant source of embarrassment.”
In this environment, bonds will continue to be uninvestible for most investors, he predicted, pushing savers to throw more money at equities in search of a satisfactory return.
The one curveball to Button’s bullish outlook is a second-wave of infections severe enough to drown out what’s clearly shaping up to be favorable climate for stocks as the economy rebounds.
“The choice you have to make is either believe in the bull case or get on the sidelines because this party is just starting,” he wrote. “Of course it will end it tears and there will be an ebb and flow, but unless virus numbers start to spike, it’s not going to end soon.”
There was no end in sight on Thursday with the Dow Jones Industrial Average DJIA, +0.04% , S&P 500 and Nasdaq Composite COMP, -0.69% all bouncing off their lows.
