Shrugging off reams of terrible economic data, plunging oil prices and dire corporate profits, world stocks have recouped around half of this year's coronavirus-linked losses as investors flip over their calendars to bet on a strong recovery in 2021.
Trillions of dollars in stimulus from governments and central banks and moves to start re-opening businesses are contributing to the bounceback. While oil languishes near multi-decade lows, it might well be the cheap fuel that powers the upcoming recovery.
The most hopeful sign is the decline in volatility.
Street's fear gauge, the Cboe volatility index as well as Euro STOXX volatility have steadily dropped over the past month to the low-30s, a level seen at the start of the meltdown in early March, before touching 85.5 points.
It's a significant one for some VIX watchers: during the 2008 crisis the VIX never held in the low-30s until the bull market began in March 2009. The rebound has taken MSCI's gauge of stocks across the globe to just 16% off record highs hit on Feb. 19, covering more than half of its lost ground.
"What we see is that the market is anticipating a recovery. It is already looking at 2021. If you look at sectors, the so- called market darlings in the technology, pharma, luxury goods all have priced in a V-shape recovery," said Roland Kaloyan, head of the European equity strategy at SocGen.
Notably, US and European share valuations based on a 12-month forward price-to-earnings are a touch away from pre-virus levels as dire 2020 earnings clearly don't figure in investors' calculations.
The tech-heavy Nasdaq 100 is just 9% off Feb. 19 levels, the only major index trading in positive territory this year.
As for economic data, equities have displayed remarkable resilience in the face of weekly US jobs data which, in the course of just weeks, saw the loss of all the jobs created in the past decade. The S&P500 has risen five Thursdays in a row, barely blinking at eye-popping US unemployment figures.
"The market always moves faster than the macro data. A lot of this we knew already, we knew it would be bad," said Valentijn van Nieuwenhuijzen, who oversees the management of 276 billion euros at Dutch asset manager NN Investment Partners.
Overall the market is moving towards pricing a return to something like normality at the end of 2020, he said.
Factories and shops in Italy, France, Germany, Spain and some others are now open - with some restrictions in place - as COVID-19 infection rates slow. Several US states are also mulling resuming activity.
"I don't think it's likely we will have repaired everything by end-2020 at all. The risk is there is some kind of reality check in the summer," van Nieuwenhuijzen said.
A calm VIX in itself should not be seen as a risk-on signal, with foreign exchange markets still pointing to vulnerabilities. A Deutsche Bank index of currency volatility has retreated from its highs but is some distance off the record lows below 5% hit early in 2020.
However, central banks' trillion of dollars in stimulus has been the silver-lining in this rally, as it was in the past decade, with investors riding a wave of cheap money inflating asset prices.
Pictet Asset Management's senior macro strategist Steve Donze has calculated that a $1 trillion central bank liquidity injection correlates with a 20-point gain in the MSCI World index.
Now, with central banks having chucked record sums to soothe markets and support the economy through the pandemic, markets are once again on a tear.
With trillions of dollars pumped in, French bank Natixis said the injection of liquidity should have a positive multiplier effect on equities as soon as the fears of systemic shock fade.
"To believe that the economy hasn't been sustainably hit by the crisis could be a mistake", warned Philippe Waechter, chief economist at Ostrum Asset Management. But investors in search of returns have few alternatives to stocks, given especially the massive intervention of central banks on bond markets, he added.
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