Since falling off a cliff in late March, the US stock markets have been on a tear, prompting many to say “the market is disconnected” from the economy.” I think the opposite is true. Here’s why.

Consider the S&P 500. Since March, its gains have been anything but broad-based. Rather, they’ve been driven largely by tech, namely big names like $MSFT, $AMZN, $AAPL, $GOOG and $FB. If investors where expecting mass Covid-19 vaccinations to be just around the corner, followed by a broad-based economic recovery, then why the narrow focus on tech stocks?

In contrast, look at the materials sector of the market. It has been left in the dust by tech. This sector includes miners of raw materials like copper, zinc and steel-making (a.k.a. coking or metallurgical) coal, among others. If a broad-based economic recovery with all of the building (e.g. of offices, roads, etc.) that this normally entails were just around the corner, then materials stocks would be doing much better, and the market’s gains would be more broad-based.

But investors clearly seem to see that it is not just around the corner. The majority of them think that it’s far enough away, in fact, that tech –big tech names, in particular– is the only safe place to invest right now. I’d say that’s a pretty tight connection between the economy and the stock market. Hence, “joined at the hip.”

The biggest thing standing in the way of the economy right now is fear: Broadly speaking, people are fearful of catching Covid-19. Until we remedy this with massive vaccination programs, the economy can’t recover broadly with any real momentum. (I know, I used the term “broad” a lot today, right?)

Indeed, as I and others have pointed out previously, creating an effective vaccine is one thing. Distributing it to the world’s population is something else entirely. (Look at how we handled masks! 😧) This is largely why I wouldn’t be surprised if it’s early 2021 before we see evidence of a broad-based economic recovery underway.

In the mean time, you could scoop up stocks in the materials and other unloved sectors “on the cheap” and wait. But if you and your stomach prefer watching your portfolio increase in value sooner rather than later, then that may not be for you. Just know that the rotation out of tech and into materials and other unloved sectors will eventually happen.