Judging the Functioning of Equity Markets in 2020

Abstract

This paper is a concise review of the equity markets' reaction to the COVIDcrisis in 2020. Relative to other global institutions, equity markets performed remarkably well in 2020 and investors ought not to be ashamed of their reactions relative to consumers. It would be a terrible abuse of language to characterize 2020 as being financially irrational. The COVIDcrisis in 2020 was one of the most orderly crises ever. The damage and the reward across companies, sectors, and countries made a lot of sense. Although there are pockets of extremely high valuations in the tech sector, humility has always been a virtue when it came to valuing tech firms. While stocks are very expensive in absolute terms especially in the US, they are not relative to governmental bonds. But there is a big caveat to all this: the rise in the monetary supply since 2010 has been so incredible that markets have dived deep in unchartered waters. Central banks must find our way back to homeland.