The stock market’s recovering and Dow Jones roars past 30,000!

Why the stock market rally?

The success of Operation Warp Speed.

At first, it was all about making masks for everyone and ventilators for people that needed them at hospitals. The government partnership with corporations that were able and willing to step in quickly hasn’t been seen since WW II. Truly amazing!

Link – Fact Sheet: TimeLine Explaining Operation Warp Speed

When Covid19 first hit hard, most hospitals were woefully undersupplied. That should never be the case again.

Over the past nine months, hospital treatments for patients have improved dramatically and the mortality rate has dropped by roughly 85%. Of course, part of this is because the vulnerable, especially those in nursing homes are being kept much safer than they were in the early months. I understand that many people have died with Covid and that is tragic. We also need to thank our medical personal for all the amazing work those on the front lines of caregiving have been and continue to perform.

Vaccines are around the corner! The fastest vaccine in history.

This is what is driving the stock market gains. The stock market is looking ahead as it always does. Never in history have vaccines been made available this quickly! The vaccine distribution won’t be perfect, but it will be a huge relief to the elderly, the vulnerable, and all those that care for them. Hopefully, with the vaccine, governors that have been locking down their states will open them up and the fear that has gripped many people will subside.

The US economy is a mixed bag today

While some states are mostly back to normal (think Florida, IN, and AZ), others are still in shutdown mode (CA, IL & NY). Completely different Governor policies state to state. Big conglomerates have prospered at the expense of small businesses. With the coming vaccine, the stock market sees the rest of the US getting back to normal in the first half of 2021.

Stocks:

Wall Street moving stocks seem to be reflecting the coming vaccine and normalcy. The policies that had the economy booming prior to the virus are still in place (for now) and the economy is set to go back to how it was moving forward. While the past several months have seen companies (stay at home stocks) that have benefited most by the shutdowns do best, that seems to be changing now. Oil prices have also reached their highest price since March. New home sales are booming now. These are signs of the economy picking up.

I think the future is bright for stock investors in general. Small stocks and value stocks are the sectors that could benefit the most in the near term. This would be delayed if our major cities stay in super shutdown mode for an extended period of time. I also think the stock market has been and maybe buoyed again by a government bailout for those adversely impacted by the virus.

Depending on which party ends up with the Senate majority it may also bailout (if Dems win 2 Georgia seats in Jan. runoff) broke state governments as part of the fiscal stimulus. Any additional stimulus money is likely to prop stocks up even more.

Bonds:

Interest rates will likely stay very low for the foreseeable future. I do not see much upside in owning bonds.

Then why own bonds at all?

The best reason I can give to own bonds is that while they likely reduce long-term stock returns, they usually protect your losses. When the stock market got hammered this past February and March, bond prices actually rose. Their price increases were a buffer to stock losses and made it more palatable to not panic out of your stock portfolio.

For example: if you had a $1,000,000 portfolio and it was all in stocks, it may have dropped with the market to $650,000 in a flash. With doom and gloom everywhere you looked, it would have been hard to hang on and not sell out.

If the same $1,000,000 account owned 60% stocks and 40% bonds, the balance may have dropped to $800,000. While that’s still a huge $200,000 decline, it would have been easier psychologically to hang on.

“Hanging on” is critical because had you panicked out you would have missed the massive recovery and never made up for that mistake.

Bottom line, a more diverse portfolio can make it more likely you won’t panic out in a bad stock market.

If you think you are fine with the potential future portfolio dips and don’t need to have the bond buffer, please give me a call to discuss.

Meeting with Brad Schedule Link