The global financial markets are experiencing an "everything rally," characterized by widespread optimism and frenzied stock-buying, despite the ongoing economic damage from the pandemic. This phenomenon is largely attributed to massive fiscal and monetary stimulus packages globally, totaling trillions of dollars, combined with the groundbreaking development of several effective COVID-19 vaccines from BioNTech-Pfizer, Moderna, and Oxford-AstraZeneca. This has led investors to anticipate a powerful economic rebound in 2021, driven by pent-up demand and continued easy monetary policy.
The rally has seen the MSCI All-Country World index climb 12.2% in November, its best month on record, adding $30 trillion in market capitalization since March lows. Notably, this stage of the rally has broadened beyond technology stocks, which previously drove much of the gains. Sectors hit hard by the pandemic, such as energy stocks, airlines, hotel groups, and European banks, have seen significant increases, with energy and European bank shares soaring 35% and 30% respectively in November. Even junk bonds, copper, oil, and Bitcoin have seen sharp climbs, while traditional safe havens like US Treasuries and gold have taken a hit.
While some analysts, like Goldman Sachs' Peter Oppenheimer, remain optimistic about future equity returns, others express caution. Michael Hartnett of Bank of America suggests investors reduce stock exposure, warning of a "full bull" stage vulnerable to setbacks. Jeremy Grantham of GMO goes further, calling it a late-bubble "melt-up" phase comparable to the century's biggest bubbles. Despite these warnings, the bullish sentiment persists, with Interactive Brokers founder Thomas Peterffy predicting the market could double in the next three years, though acknowledging potential inflation.
The market's euphoria is also reflected in investor behavior, with almost all major US brokerage firms experiencing outages in November due to high trading volumes. Equity funds have globally attracted nearly $90 billion since the beginning of November, marking the strongest three-week stretch of inflows on record. Short positioning on US stocks is at its lowest since at least 2004, indicating widespread bullish sentiment. Liz Ann Sonders of Charles Schwab notes that the "froth in sentiment" has spread across pretty much every measure since the Pfizer vaccine news.
