Stocks dropped for most of last week (before Friday’s rebound) not because anything actually “negative” occurred, but instead because at 4,100+ in the S&P 500, investors have aggressively priced in a lot of things, including (1) “As soon as possible” economic reopening and (2) No negative impacts from Democratic policies. Last week, both of those assumptions came into some (minor) doubts. Combine that with a stretched market and investor complacency, and we got a small uptick in volatility and a mild dip in stocks prices for most of the week.

Assuming no hiccups on (1) COVID ending, (2) The economy fully reopening in the next month or two and (3) No negative policy headlines from Democrats, is frankly unrealistic. We should expect more headline volatility around each of these issues, and we should not be surprised if they cause a mild pullback considering investor complacency and current valuations.