As the Dow climbs nearly 600 points on the heels of Monday’s more than 200 point rally, one thing is becoming increasingly evident; President Joe Biden better get our economy right. Because if he doesn’t?
We have a long ways to fall.
The market is currently priced for perfection–and then some. I would be thrilled if the U.S. economy could log the nearly 4% growth that the CBO is anticipating. And, hey, maybe the economy can, if everything goes right.
But, that’s a big if. This is not a political statement, this is reality. Investors aren’t political. They’re realists.
Dow Soars on Vaccines, Earnings, Stimulus Hopes
Clearly, there are some fundamentals to feel good about in our economy right now.
The news of three vaccines–from Moderna, Pfizer and Johnson & Johnson–is extremely encouraging. (Less encouraging is the government’s ability to distribute the vaccines…nonetheless, this should improve.)
Another good sign is earnings. Earnings for the last quarter of 2020 have been better than analysts had anticipated. Of the 189 companies on the S&P 500 index that reported by late Monday, 81% of the companies had beaten expectations according to FactSet. Alphabet and Amazon both report after the bell Tuesday.
Meanwhile, it’s clear some kind of stimulus is in the works. The Democrats are proposing $1.9 trillion and a group of Republican Senators is also keen to spend money in direct payments to individuals, as well as federal unemployment benefits.
But, what happens then?
How do we sustain our economy — and therefore, these extraordinarily rich markets?
One of the realities of this moment is that individual investors and savers really have no where to turn. Because there’s no interest in bank savings CD (certificate of deposit) and, no yield in treasuries, your average investor is being forced further and further out on the risk curve. Equities are the only game in town.
As the Fed continues printing money and leaving interest rates near all-time lows, and as the government prepares for direct payments, there’s little to suggest the economy will be able to emerge from this decline.
I’d love to be proven wrong and I am hopeful that the Fed and our government can carefully navigate these treacherous times. However, increasingly it looks like all the market euphoria is built on false hopes. The United States cannot live on handouts alone. We need thriving small businesses to succeed. Small business is the engine of growth in this nation. But, massive money printing and major handouts combined with increasing regulations will continue to challenge our capitalist engine.
Right now our market is priced for perfection. But remember, nothing is ever perfect.
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