Stocks Have Gone Wild!

Stocks have gone wild since the election with the Dow Jones Industrial Average (see chart here) breaking the 30000 level for the first time ever last week! This morning the S&P 500 (see chart here) hit its all time high trading above 3660. The Nasdaq Composite (see chart here) is also trading at its all time high and the small-cap Russell 2000 (see chart here) has also recently hit an all time high.

So why all of this love for stocks while we are in such a tumultuous time? I think it is safe to say that the Federal Reserve continues to play a major role in this never ending rally. Essentially zero percent interest rates, massive stimulus packages along with asset purchases remains the top catalysts for these record setting ways. The ironic part of disasters and catastrophes is the willingness and capabilities of central banks to step in to offset the negative economic impact of such catastrophes. COVID-19 has shocked the world and has lead to widespread unemployment, while devastating businesses and industries alike. Never before have we seen such widespread effects on life as we know it. The good news now is there is light at the end of the tunnel. The recent news on the advancements with vaccines and their effectiveness is very encouraging. Some pundits are now saying we could be at herd immunity by the summer of 2021. Let’s hope this is the case.

Now this is where things can get tricky for the markets. As the light at the end of the tunnel gets brighter, what happens when the Federal Reserve begins to change its stance on accommodative policies? The Fed backstop will not last forever. The risk here is that when the Federal Reserve signals a change in direction, it is then that the markets will become more tethered to actual corporate earnings power. So if you stay long this market or if you are adding on new positions, it would be a good idea to make sure you are invested in companies and sectors that have earnings power and continuing growth prospects.

Good luck to all 🙂

~George

An Absolutely Incredible Stock Market!

It is absolutely incredible that this stock market is weathering the threat of impeachment! We have witnessed the strongest bull market in history! Not even the threat of impeachment can rattle this market. I do not want to get too political here but if half of this is true the markets just don’t care. Then throw into the mix the constant flip flopping that is going on with the China trade war and we are still near all-time highs? This makes me believe more now than ever that passive investing has almost got a total grip on stocks. Seemingly NOTHING can shake these markets. It’s almost like close your eyes and hang on for the ride. This worries me a bit. Why? Well for starters stocks used to be valued by their proprietary nature, growth potential, earnings power and ultimate dividend yields. We have witnessed a melt up in the stock market for more than a decade despite the shocks that have come and gone. What’s more is the geopolitical risks that are here and present and now our own President is going through an impeachment process and we still are near all time highs? Simply an absolutely incredible stock market we find ourselves in!

Well there is an old saying on Wall Street and that is the “trend is your friend!” My friends there is no denying this over the past decade. Let’s also keep in mind that the market is a lot smarter than we think. Meaning, there is no panic with this latest tape bomb of impeachment. Well one can say there is no way this President will get impeached because the Senate will not roll over. This very well may be the case. One thing we can do is pay attention to how corporate America continues to perform or not perform. At some point in time one would think that valuations will matter and that the markets will begin to pay attention to the normal risks that are inherent with any market.

Good luck to all 🙂

~George