Perception Continues to Drive the Market

We're not in a perception versus reality debate.

Personally, we've tiptoed back into the world although Texas has been faster to open than many states, so we have that option. The question about safety and risk still sits atop many minds.

In our area, the great debate of mask wearers and non-mask wears mainly rages on social media, but I have seen plenty of evidence of debates escalating to physical confrontations over the two sides. It is certainly something that has many communities divided with some turning it into a political battle. Politics is something I try to avoid whenever possible while talking markets, so you won't find my views here, but we need to talk about perception.

When you see videos of crowded boardwalks, parks, shopping districts, tubing rivers, lakes, marinas, downtown areas, or whatever the place may be, while they may be few and far between in actuality, they give the impression life is returning to normal. We might be seeing pictures from 50 different places across the entire U.S. while tens of thousands remain relatively empty, but the empty places aren't getting the press or going viral. The outlier pictures are though. And that gives us the perception things are "normal" again in some places.

Normality will breed confidence. Confidence breeds spending. Spending spurs growth.

At least that's the theory. And maybe that's what's driving us again today. Or maybe it's with every day passing, we believe a vaccine is close. Or maybe we've become so numb to numbers that without a shocking second wave surge, continued measured growth is acceptable.

Merck (MRK) doesn't seem to be convinced we'll see a vaccine in 12 to 18 months. Moderna (MRNA) hit the market with a perfectly timed big-dollar secondary. Those buyers are now 18.5% underwater. It may be that Merck wants to throw cold water on the vaccine idea since it just bought Austrian vaccine market Themis Bioscience, a private company jointly working on an oral antiviral drug.

In the middle of all this is China, almost quietly forgotten. The White House continues to share tidbits that things are just fine despite rumblings from overseas. Again, the perception here is we're only seeing posturing. Things are good.

What this boils down to is perception continues to drive the market. It will always drive the market. The negatives are being shaken off like a first time rider on a long-time bull which means long remains the name of the game. Being long doesn't equate to being blind. I'd still be aggressive taking profits into a big gap like today, but I wouldn't be aggressively shorting. It's a fantastic time to learn the strategy of rolling up profits by using options. Protective puts, synthetic longs, rolling a profitable call option up in strike or both up in strike and out in time are great ways to protect/limit your downside and continue to ride the bull.

Caution hasn't been a great payoff, but one has needed to be fully invested to profit from the huge moves we've seen. There's a fallacy that says you have to be all-in or all-out. Remember, you are competing against yourself, not some boasting bot on Twitter or the world is going to end Chicken Little. Still, you should attempt to understand the perception of the crowd, and as I see it, the perception is we're expecting a return to normal before the end of the summer.

At the time of publication, Timothy Collins had no position in the securities mentioned.