Frothy, Bubbly Stocks

Aaron Schuler, CDFA® here.

I’m not writing to you about cappuccinos, champagne, or bubble bath.

We’re talking stocks.

You may have noticed that the shortest bear market in history is over, and markets recently hit new record highs.

Will stocks keep going higher? Will they stay volatile?

Is another bear market around the corner?

Maybe. Maybe not.

As is pretty common in these situations, market strategists are split.

Some see a new bull market that reflects a recovering economy.1

Others see troubling signs of a bubble that could burst.2

What could push stocks higher?

  • A market-ready COVID-19 vaccine or major treatment breakthrough that reignites optimism.
  • More government stimulus that supports consumers and businesses.
  • Good economic numbers that suggest we’re on the other side of the recession and the recovery continues.

What warning signs are flashing?

  • A rally mostly powered by tech mega stocks that isn’t reflected in the broader market.
  • Uncertainty around a November election that’s already contentious.
  • A possible “Minsky moment” market collapse fueled by the Fed’s easy money policy and unsustainable stock prices.3
  • Predictions of a second wave of infection that could provoke more shutdowns.

Bottom line, we can’t predict what comes next, and it’s too soon to claim victory for markets. Maybe we’re on a new bull market run. Maybe we’re facing a second correction.

Since we can’t predict the future, we’re focused on helping our clients cover their financial bases for the next year by having a financial plan. 

As the pandemic continues to drag into the fall, we’re thinking a lot about how to fit regular activities into a “risk budget.” For example, we can group multiple low-risk activities into a bi-weekly budget (go for walks, shop for groceries, etc.) but only one higher-risk activity (like eating out or socializing).

What’s your take? How are you reintegrating normal activities into pandemic life?

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