With many markets shut for New Year’s Eve, the world closed the book Thursday on what will rightly be remembered as one of the worst years in modern history.
But the story for asset prices was a tale written by central banks, something former Lehman trader Mark Cudmore emphasized.
““Don’t fight the Fed’ is a market adage every trader learns early in their career. It has much greater meaning than ever before,” Cudmore said. “As central bankers became increasingly unable to influence inflation in line with their mandates, they turned to directly impact what they do have control over: markets.”
On March 23, the day the Fed stepped in with open-ended QE and unveiled corporate bond-buying, I wrote that “there will be plenty of finger-pointing when this crisis is over [but] nobody will be able to accuse Jerome Powell of not taking the most drastic measures imaginable, even if there will be a veritable chorus of folks accusing the Fed of ignoring moral hazard.”
I think it’s safe to say that assessment turned out to be accurate.
Of course, not all assets benefited equally. As in society, the disparity between the “haves” and the “have nots” was vast indeed.
While it’s tempting to point to November’s outperformance for laggards like value and small-caps as evidence that the rally’s composition is changing, Credit Suisse’s Jonathan Golub estimated that, in fact, value’s purported resurgence was really just the product of “four ‘good news’ days” around vaccine readouts and Janet Yellen optimism.
Indeed, a look at the growth/value disparity shows that while the trajectory has perhaps calmed down and (dare I say it) leveled off, 2020 was the year the ratio went parabolic.
Again: The pandemic accelerated existing trends in markets, just as it did in society. And those trends fed on one another, sometimes to deleterious effect.
As Bloomberg wrote Wednesday, citing Vincent Deluard, “over 10 months of chaotic swings, companies whose profits rely least on people beat those that depend the most by 27 percentage points.”
And yet, ultimately, it was people who helped us survive 2020. And not just central bankers.
AxiCorp’s Stephen Innes emphasized as much in a Thursday note. “Although US stocks are notching year-end record highs, I suspect everyone is more than happy to slam the door shut on a devastating 2020 and hide it in our deepest memory recesses,” Innes wrote, adding that “besides lavishing policymakers with praise for the extraordinary monetary policy and fiscal stimulus which provided the fundamental tailwinds to float us out of the COVID economic abyss, do try to keep those folks who worked tirelessly in healthcare and medical research in your debts, as without them, we would not be here getting ready to pop the champagne corks.”