This Can Go On Forever

Infinity is a long time. The most common question we get is how much long can the stock market keep going in the face of such terrible news?


Given current circumstances…forever.


If you have a sense that the market is overvalued, you are correct, many stocks are trading, on any metric you choose, at the very high end of valuations seen over the past twenty years. Based on current earnings we should be headed for the portfolio bunker.


But the stock market is a discounting mechanism, it is trading today on the outlook for mid next year. Summer 2021’s expectation is that a vaccine will be widely available and life will be getting back to “normal” relatively quickly. Despite all the recent bad news, the picture of next year has not changed much over the past three months.


The second and maybe more important piece is that the Government and Federal Reserve is doing everything in power to prop up the economy (and markets). With interest rates at zero, bonds are not attractive so new funds (and there is a lot of new funds) make their way into the stocks market, and largely into the same 20 stocks pushing their valuations through the roof.


Thus to really knock the market off its pedestal, the outlook for next year or the Federal stimulus needs to negatively change.

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