As a follow-up to yesterday’s post about how no one seems to be worrying about the federal deficit, I was having a conversation with a reporter this morning and found myself expanding on other things the market seems to have forgotten about. Yes, we have the pandemic and the U.S. recovery on the radar, but not the deficit. And once you start thinking about it, there are other issues out there that were rattling markets only last year. What about the pending hard Brexit, for example? What about the U.S.-China trade conflict and deals? What about the continued weakness of the energy sector? What about the rising pandemic costs in emerging markets? What about the growing conflict between Greece and Turkey (two NATO countries) in the eastern Mediterranean? And so on, and so on.

Recently, the number of questions I’ve been getting has been greater than usual. People are getting scared. It is not just about the pandemic, as that seems to be and is, at the moment, moving under control. Rather, people are worried about the election (and what that means for their portfolios), about the value of the dollar (and what that means for their portfolios), and about inflation (and what that means for their portfolios). The first concern comes up every four years, and the second and third are perennials, which appear whenever things look a bit dicey. No surprises here. But what is surprising is what’s missing: the questions about the federal deficit. This kind of uncertainty typically generates questions about what the deficit, and the debt, mean. Not this time.

The past week has seen continued improvement, with the case growth rate down to new lows and case growth below 30,000 per day for the first time since June 21. The pandemic remains under control, and things are still getting better. The control measures are working.

After a record-setting August, we are now seeing some market turbulence in September. Markets were down significantly yesterday and are headed lower today. What’s going on?

Today, I'd like to provide an update on the coronavirus, including the economic and market implications. We had good news on the medical front, as the pandemic remains under control. Case growth is down, and the case growth rate remains well below the lows seen in mid-June. Still, testing continues to be an area of weakness, and the possibility that school reopenings will lead to more infections is a concern.

The good news is that the pandemic remains under control, with continued improvement. Case growth has gone down further over the past two weeks, and the case growth rate remains below the lows seen in mid-June. The control measures are working.

After a great month like August, expectations and momentum are high, and you could reasonably expect to see another great month ahead. That scenario happens, and it is certainly what we are seeing in the first days of September. But taking a detailed look at last month’s results suggests some reasons for caution. Let’s start with where the returns came from.

There has been a great deal of commentary surrounding the change in how the Fed is going to manage inflation. As announced yesterday, the Fed will be using a “flexible form of average inflation targeting.” This means that rather than the prior objective—to keep inflation below 2 percent at all times—the Fed will now aim for an average inflation level of around 2 percent. Since inflation is well below 2 percent and has been for some time, markets are interpreting this announcement as the Fed will be willing to let inflation run hot (i.e., above 2 percent) for some time to restore the average. Cue the worries about hyperinflation.

The good news is that the second wave of infections has continued to come under control in the past two weeks. Case growth is down significantly from the peak, and the case growth rate has ticked back down below the lows seen in mid-June. Despite the higher case counts, the pandemic is once more under control. The control measures are working.

Tomorrow, I will give my usual pandemic update (spoiler alert: improvement continues). But today I’d like to focus on what is becoming increasingly clear: the stock market and, to a lesser extent, the economy have started to move past the pandemic. While it clearly isn’t over and will continue to have an effect on both, the headlines and market reactions have moved on.