During the fourth quarter the economy continued to recover but remained well below pre-pandemic activity levels. At the same time, the political environment became even more fraught as challenges to the presidential election confirmed the worst fears of political divisiveness.

Despite these challenges, the fourth quarter continued with strong performance as the Russell 1000 index was up 11.78% in the month of November alone. The frothy sentiment was captured by The Market Ear: "Upside remains the panic trade". The open question for investors is what to make of the increasing dissonance between the market and underlying conditions?

A bubble by any other name ...

Indeed, trying to make sense of that dissonance was an ongoing challenge throughout the latter three quarters of 2020 and into the new year. The phenomenon was covered by earlier market reviews entitled “Calibrating the craziness” and “Should I stay or should I go?” and also traced out by the weekly “Observations” newsletter.

More recently Jeremy Grantham came out with a note, Waiting for the Last Dance, that expresses his assessment of the dissonance between markets and fundamentals:

"Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time … "

The key point here is that the current market environment is like to have an enormous impact on investors. Although it doesn’t matter what you call it, Grantham does refer to it as a bubble.