Most Disconnected Market Ever

This is one of the most disconnected stock markets in history. The lesson we have learned in the past 10 years is if stocks are up and the economy looks weak trust stocks. That might not be bad advice this time because the economy is set to receive another stimulus, interest rates are at zero, and the vaccines are being distributed. There have now been 6.25 million vaccine doses given out in America and 17.5 million worldwide.

The state with the highest percentage of citizens vaccinated is West Virginia at 4.13%. Unfortunately, the COVID-19 data still looks bad and there will be a new record total of deaths for a month in January. The 7 day average of people in the hospital is at a record high of 128,349. The 7 day average of deaths is 2,758 which is also a record high. The data has normalized after the holiday.

The Russell 2000 is up over 6% in 2021 already. The only other year it rallied more than 6% in the first 4 days of the year was in 1987 when it rose 6.8%. It rallied another 23% through August 1987. However, it crashed later in the year. We could easily see a massive crash this year (not a forecast), but it’s much more likely to happen in the Nasdaq 100 than the small-cap index due to high large-cap growth valuations.

Small caps are spiking enormously to start the year despite the decline in the economy. As you can see from the chart above, the Oxford Economics recovery tracker index has taken a turn for the worse in the past few weeks with the Pacific underperforming. It will be interesting to see if the states with the highest vaccination rates have the quickest recoveries. It’s too soon to tell now.

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