Is The Stock Market Way Ahead of Itself?

Is the Stock Market Way Ahead of Itself?

The recent market rally off the lows in March has been nothing short of historic.  Markets have made a great deal of history this year and this recent rally is more of the same.  S&P 500 is up 40% from the March lows and the Nasdaq 100 just recently hit a record high.  So, what is going on?  Is Wall Street really expecting such a big economic rebound?  Is the stock market way ahead of itself?

The stock market is not the economy.  You may have heard this before but sometimes the market can be really disconnected from what is happening on Main Street.  Now is one of those times.  The Fed went all out to combat the economic effects of the Corona virus with ultra-low interest rates and a flood of stimulus money that already dwarfs the response to the 2008 financial crisis.

All of that cheap money has to find a home so the Fed can create periods of asset inflation as money chases assets.  There is a market saying, don’t fight the fed.  That has been proved correct over the past 10 years but eventually the medicine becomes the poison.  The Fed is essentially out of ammunition, they have used so many tools to prop up or accommodate the market over the past decade so, at some point, that artificial market will run out of gas and asset prices will adjust.

When is that time, who knows?  As much of main street attempts to reopen and come back, there will be problems along the way and the V shaped recovery that many in Wall Street were expecting or hoping for is probably going to be much much slower as the economy will probably take years to recover.  Whereas we cannot or attempt to time markets, since 2000 there have been 3 bear markets so the boom and bust market cycle is not only continuing but also becoming more frequent, more volatile and more severe when compared to other periods in history. 

Be smart with your money and be smart with your investments.  The worst decisions made in uncertain times come from being emotionally driven whereas the best decisions tend to come from making data-driven decisions.  Trade in fear and greed during volatile times and replace with common sense and self control.