U.S. markets closed
  • S&P 500

    4,141.59
    +13.60 (+0.33%)
     
  • Dow 30

    33,677.27
    -68.13 (-0.20%)
     
  • Nasdaq

    13,996.10
    +146.10 (+1.05%)
     
  • Russell 2000

    2,228.92
    -4.86 (-0.22%)
     
  • Crude Oil

    60.53
    +0.35 (+0.58%)
     
  • Gold

    1,746.60
    -1.00 (-0.06%)
     
  • Silver

    25.42
    -0.01 (-0.02%)
     
  • EUR/USD

    1.1959
    +0.0004 (+0.04%)
     
  • 10-Yr Bond

    1.6230
    -0.0520 (-3.10%)
     
  • GBP/USD

    1.3760
    +0.0007 (+0.05%)
     
  • USD/JPY

    108.8900
    -0.1580 (-0.14%)
     
  • BTC-USD

    63,399.75
    +3,365.20 (+5.61%)
     
  • CMC Crypto 200

    1,353.54
    +59.55 (+4.60%)
     
  • FTSE 100

    6,890.49
    +1.37 (+0.02%)
     
  • Nikkei 225

    29,751.61
    +212.88 (+0.72%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Hope and how it functions in financial markets: Morning Brief

Sam Ro
·Managing Editor
·4 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Monday, December 21, 2020

Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Hope is an investment strategy

In recent weeks, Wall Street analysts have been publishing their expectations for the year ahead.

But unlike outlook reports we’ve seen in prior years, every analysts’ forecast this time around is tied to the success of COVID-19 vaccines that were discovered just weeks ago, which were developed to prevent the spread of a virus that became known just months ago.

And so, what’s next for the markets and the economy won’t be informed by history. Market forecasters and investors will be taking a leap of faith.

"We believe the dichotomy between hope and reality will be a key theme throughout 2021,” Piper Sandler’s Craig Johnson said in his 2021 outlook published on Wednesday. “Hope for a swift recovery remains high as the vaccine rolls out around the globe.”

“Hope” is a relatively unscientific concept that sometimes draws mockery in the investment community. But just because a concept doesn’t fit the mold of strict fundamental analysis doesn’t mean that it doesn’t play a big role in how financial markets function. Indeed, there’s an entire field of study within finance that explores these types of less-than-rational concepts.

So, “hope” riddles Wall Street research as analysts discuss what’s ahead. Here’s a sampling from just the past week:

  • “Positive COVID-19 vaccine news in the final months of 2020 has markets looking to 2021 with optimism — and hope for a return to something more ‘normal,’” wrote Tony DeSpirito, BlackRock CIO of U.S. Fundamental Equities, in his Q1 2021 outlook note published on Friday.

  • “Now on the cusp of 2021, and hopefully the beginning of the end of the pandemic as vaccines and other treatments are offering hope to millions, we again pause not only to reflect on the past but to turn with more of an eye towards the future,” wrote Henry McVey, KKR’s Head of Global Macro & Asset Allocation, in his 2021 outlook note published on Thursday. “[T.S.] Eliot’s penchant for thinking through the past, the present, and the future resonates with us today as we think about not only the ongoing devastation of COVID-19 but also the hope of what a cure might bring.”

  • “The major vaccine breakthroughs in November and December have lowered uncertainty and raised hopes that life could become more normal again at some point in the next 12 months,” wrote Janet Henry, HSBC Global Chief Economist, in her 2021 outlook note published on Wednesday.

Hope helps investors look past uncertainty and look to what’s expected to happen so that they might capitalize on what actually happens.

Just as hope explains what’s to come in markets down the road, it also explains a lot of what’s gone on in markets this year. As Morning Brief readers know, for much of the year a large share of the investor class had serious doubts about a COVID-19 vaccine becoming available as quickly as it did. While most of them probably weren’t epidemiologists, they were nevertheless making decisions that may have been holding back markets.

Meanwhile, the investors who were more hopeful of a vaccine becoming available soon were likely ones bidding up stocks all summer. And they were further rewarded as major vaccine developments brought skeptics back into the market, sending stock prices to new record highs.

Now, are we saying hope is a good thing? Far from it. Just as it might make those overly risk-averse from taking the right amount of risk, hope might make those overly willing to take risks to make very poor decisions.

And who knows? There are still a lot of things that can go wrong in markets that could send stocks lower again, punishing all those hopeful of the rapid progress of the vaccines.

“[T]he reality of the outbreak causing potential prolonged lockdowns over the coming months could portend a bumpy economic road ahead,” Piper’s Johnson added. “We further suspect this backdrop will create above-average volatility next year with downside protection coming in the form of fiscal and monetary policy support.”

As is often the case, the best move for investors is to have a thorough, well-thought-out investment plan designed to meet your financial goals based on your ability to take risk. Maybe hope helps you stick to it.

By Sam Ro, managing editor. Follow him at @SamRo

TD Ameritrade
TD Ameritrade

What to watch today

Economy

  • 8:30 a.m. ET: Chicago Federal Reserve National Activity Index, November (0.83 in October)

Top News

Democratic and Republican leaders reach $900 billion coronavirus relief deal that includes stimulus checks [Yahoo Money]

UK stocks tumble as mutant COVID strain prompts Europe to shuts borders [Yahoo Finance UK]

What Tesla's entry to the S&P 500 means for index investors [Yahoo Finance]

Lockheed Martin inks $4.4 billion deal to acquire Aerojet Rocketdyne [Reuters]

SoftBank to file Monday for SPAC to raise over $500 million [Bloomberg]

YAHOO FINANCE HIGHLIGHTS

Digital sales and China emerged as the twin pillars lifting Nike’s Q2 earnings

Escape from NY: Analyst warns exodus means the city won’t be a ‘billionaire playground’ anymore

Ad Council readies massive COVID-19 vaccine campaign: 'We're going to need a lot of Elvises to make this work'

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.

Find live stock market quotes and the latest business and finance news

For tutorials and information on investing and trading stocks, check out Cashay