It is above all a symbolic threshold, but it is indeed an all-time record. The Dow Jones, the US stock market index, has exceeded 30,000 points, a level never reached. In Belgium, the contrast is striking: while the "business climate", the confidence of business leaders, is deteriorating, the Bel20 index signs in November the best month in its history – it has in fact returned to its level of the end of last February, and therefore at its level before the Covid crisis.

The time of the stock markets is not the time of the economy

How is it that the stock markets are rising, rising in a dazzling way, when the economic outlook is so bad? Stock market prices actually have very little to do with today's economic reality.

Because to put it simply, the stock market price of a company today is not a reflection of the economic health of that company today. This stock market price is a reflection of what investors or speculators expect from future profits. And the main determinants of these hopes for future profits in the context of the health crisis – those that have guided the stock markets in recent months, are not the results of companies or their prospects, but the health curves, the decisions of reconfinement, deconfinement, relaxed confinement or the arrival of vaccines.
Hope for a return to normalcy

These elements are preponderant because they also guide political and economic reality. However, the announcements of vaccines, or several vaccine candidates at this stage, have followed one another for two weeks — Pfizer, Moderna, AstraZeneca — and these announcements come to nourish a hope: that of a return to normal for everyday life, and therefore also for the life of companies. A return to normalcy that would be — and this is hope or optimism — synonymous with a return of profits.

As Bernard Keppenne, chief economist at CBC Bank, sums it up, stock market time is not economic time. "And it's probably even more pronounced this year. During a lockdown in Europe, and with a risk of partial lockdown in the United States. The markets already have a much more distant horizon, which is the arrival of a vaccine in 2021, which should allow an economic recovery. And so they already anticipate in the results or in the earnings prospects of companies.
Bankruptcies will increase

"If we take the case of Europe, that we will find ourselves in a much more serious situation in terms of bankruptcies and unemployment in 2021 than in 2020. But stock markets are already anticipating the economic recovery. This creates a significant divergence with the economic feeling."

On top of that, the monetary policies of the various central banks, which have been flooding the markets with liquidity – in industrial quantities – have been a bit of a game changer. These policies push interest rates down, steer investors toward equity markets – to the detriment of bond markets, and somehow "carry" stock markets.
Transition initiated in the United States

The other element that boosts today, in particular the Dow Jones in the United States, is precisely the American political situation for Bernanrd Keppenne: "Trump half-heartedly acknowledges his failure and the transition process is now underway, and this is a positive element. And above all, in Biden's new team, we have the appointment of Janet Yellen, the former governor of the US Central Bank, who will become Secretary of the Treasury in Biden's team, and this is also an extremely positive element for the markets because she will have a rather supportive attitude. budgetary intervention".

And this prospect, of both a smooth (or smoother than initially feared) political transition and arguably massive fiscal stimulus in the United States, is also at all good for financial markets.