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Money Talks
The Stock Market Isn’t So Irrational After All
The stock market swings after Pfizer’s vaccine announcement prove that the market isn’t as wildly exuberant as many believe
Money Talks is a column that explores what happens when business, the economy, and culture collide.
If there’s been one cliché that has defined the stock market over the past eight months, it’s that “the market is disconnected from the real economy.” With stocks hitting all-time highs in the midst of the coronavirus pandemic — even though the U.S. economy was in recession and unemployment had risen sharply — it was easy to argue that stock prices had lost connection to economic reality. This was a crazy market, fueled by cheap money from the Fed and unrealistic hopes for the future.
Then came Monday. After news broke on Sunday that Pfizer’s new Covid-19 vaccine candidate was doing exceptionally well in clinical trials, stock futures soared overnight, and the S&P 500 opened the next morning up more than 4%. While at first glance, you might assume that was just further evidence that this is a market governed by emotion rather than economic fundamentals, under the surface something interesting was happening. On the whole, the market may have been up on Monday, but that fact disguised a more complicated reality, in which companies that could be expected to do well if the vaccine were effective — like movie theaters and airlines — saw their shares spike sharply, while “stay at home” stocks that might lose some of their relative advantage if the pandemic were to be controlled saw their shares fall. In other words, this was not a market in which investors were indiscriminately buying on the good news. It was a market in which investors were drawing distinctions between stocks, driving up the price of Delta’s shares while driving down the price of Clorox.
That might seem unsurprising, since that’s precisely what we expect investors to do. But that stark division in the…
