Marc Cuniberti The big question on the minds of investors is can this stock rally keep going?
The Dow has busted through its all-time high and crested the major milestone of 30,000. This historic move has occurred while arguably, the U.S. economy, because of CoVid-19, is the weakest it’s been in decades.
Many are asking how can this be and how does it make any sense at all.
The long and short of it is there are two very good reasons why the market is exhibiting such optimism in the face of such dire economic realism.
The “wall of money” the U.S. government threw down midyear in the first CoVid rescue package was over two trillion in giveaways, loans, backstops and reimbursements.
Few comprehend just how much money that is. A billion is a thousand million. A trillion is a thousand billion. The phrase “wall of money” is an understatement. Calling it a “tsunami of money” would be more like it. indeed, it is the most money thrown anywhere, in the least amount of time, in world history.
There is there is also second tsunami in the works and it may even be more than the first one. When a trillion or more is thrown into an economy, there is absolutely no chance some of it will not pop in the stock market. That said, a market “new high” is not so much of a surprise.
The second reason for the markets surprising ascent is the realization that the world will reopen again once CoVid is under control.
Wall Street loves its comparisons, and once consumers hit the streets unabashed, the money spent will be massive. Pent up demand from shut in consumers will likely flood out into every nook and cranny.
Indeed, in the opinion of this analyst, corporate cash registers will over-heat trying to keep up with the pace of spending, it will be that fast and furious.
That said, many are still scratching their heads, trying to put some sense to a market in super rally mode while the underlying economy is reflecting such a dismal reality.
Indeed, the cross currents are significant. Yet the markets only on occasion reflect the contradictions.
With a new president bound for the oval office, it only adds to the renewed hope and anticipation of good things to come. Many are asking what the “Biden” economy will bring. I think the term, the “buy them” economy is more appropriate.
My opinion of course as to the above clue of which way this market will go.
Although the Dow was at a new high right before CoVid hit early in 2020, and many guessed it was running out of steam back then, with an estimated five trillion destined to consumer and business pocketbooks in the next round of stimulus, it’s hard to imagine that much of that money won’t once again find its way into the markets.
To say there are no risks lurking about in the coming recovery would be a mistake however. Much could go wrong in the weeks and months ahead that make an “all in stocks” posture a risky proposition.
CoVid could not fully cooperate and stubbornly hang around longer than anticipated. The economic damage could be worse than calculated, the restart of the economy could cause unforeseen problems or inflationary fires could ignite into an inferno, due to all the money that has been created to fund the various rescue packages.
Indeed, one doesn’t print up five trillion very often and toss it into an economy within a years’ time. In fact, it’s never been done, at least not with that amount of money.
What happens when that amount of money is tossed out into the world’s largest economy is anyone’s guess.
In many aspects, the U.S. and indeed the world are in uncharted waters. That the stock market thinks everything is predictable going forward is at least, for me, a bit concerning. That said, it is in my opinion that an “all-in with no hedges or protection” commitment is not recommended, at least at this juncture.
Opinions expressed here are opinion only, and not those of any bank or investment advisory firm. Nothing stated is meant to insure a guarantee, or to be construed as investment advice. Neither Money Management Radio (“Money Matters”) receive, control, access or monitor client funds, accounts, or portfolios. For a list of the services offered by Mr. Cuniberti, call (530)559-1214. California Insurance License #0L34249 and Medicare Agent. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. Email: [email protected].
Photo by Elena Mozhvilo on Unsplash
