I bet that you can’t recall how many times we’ve said that the one thing the markets really and truly dislike is…uncertainty. We’ll elaborate on that a bit in today’s Market Minute (below) but before we look at that, let’s have a quick refresher on the many ways that 2020 has brought a nearly incomprehensible oversupply of that particular nemesis.

Of course, we now tend to think that our no good, terrible, annus horribilus began with Covid-19 and the forced shutdown of a near-perfect economy. That’s not quite true. We already had disagreements over China, we had the specter of civil unrest over racial issues, there were worries that Brexit might cascade into further erosion of the EU and we even had an attempted impeachment. But, economically, and market wise, things were pretty good. Employment numbers, Purchasing Managers indexes, Corporate Earnings, Federal Reserve and Consumer Confidence all produced smiley faces. However, by mid-March, as Yogi Berra might have said: it was clear that train had sailed.

Now we have a new list of things that all contribute to the general Confidence/Uncertainty ratio. Another old axiom is that, in an uptrend, markets must climb a wall of worry. And that is exactly what we have been seeing in recent weeks and days. Just yesterday, all three of the major indexes posted new record highs at the close. The big Worry Boxes are getting ticked. We now have not only one but, as of yesterday, two vaccines for Covid-19. At the beginning of the pandemic China and India were hard hit and both now seem on the good side of the curve. That’s not only great news for their local populations, it’s also helpful for investors concerned with Emerging Markets. Domestically, the Fiscal Stimulus Worry Box will likely get its check mark today or Monday. The Worry Box of Inflation/Interest Rates got some attention this week as Fed Chair Powell said he expects not much of either for up to three years. Results of The Big Election were not pleasing to all but the good news was that the Senate is likely to remain with a GOP majority, insuring a divided government. It may seem odd to say that divided government is a good thing but it helps to keep either side from over catering to their own special interest groups.

So, you can see why we are in the camp of ‘glass half full’. However, let me leave you with this. All this good news box ticking is made up of eliminating or mollifying areas of concern – things that have been impediments to moving forward. Indeed, toe-holds on the wall of worry. What they don’t do (except maybe Interest Rate outlook) is tell us too much about ‘OK, What now?’ That will begin to unfold once we see something concrete of the Biden policy set. Whatever, it portends won’t take hold soon. Meanwhile the sun is shining and there’s hay to be made.

Ron’s Market Minute – How Bullish is Too Bullish?

If there’s one thing Wall Street hates, it’s uncertainty. And between the COVID-19 pandemic and the presidential election, there was way more than enough uncertainty to go around. So, it’s not surprising that many investors ran to the sidelines in the Spring of this year.

It should also not be surprising that there’s never been so much cash sitting on the sidelines – nearly $5 trillion (that’s NOT a typo. It is trillion, with a ‘T’) This is significantly above the record $3.8 trillion in cash set back in January 2009 during the financial crisis!

And despite the spending headlines, lots and lots of consumers kept their wallets somewhat closed. Normally, Americans keep 7%-8% of their income in savings. This year, though, that rate surged over 33%. According to the FDIC, more than $2 trillion has been stockpiled into individual bank accounts.

That money came from selling stocks and the massive government stimulus that was pumped into the economy. Remember that in March the U.S. government passed a $2.2 trillion stimulus package. Part of that package included a $1,200 check for American taxpayers with an adjusted gross income of $75,000 or under on their 2019 tax returns.

And another interesting statistic, people who earned between $35,000 and $75,000 increased their investing activity in the stock market by a whopping 90%.

Plus, this: to keep the economy going, the Federal Reserve pretty much threw in the kitchen sink! Back in March, the Fed announced that it would not cap its quantitative easing program at $700 billion. The Fed also committed to purchase as many Treasuries and mortgage-backed securities “in the amounts needed” to help stabilize the U.S. economy. And it would purchase agency commercial mortgage-backed securities.

Thanks to this unlimited quantitative easing, the Dow and S&P 500 will continue to yield more than the 10-year Treasury, which is hanging a little below 1%. In comparison, the Dow and S&P 500 currently yield about 2.5% and 1.9%, respectively.

And now, with a lot of the uncertainty shaken out of the market, cash is pouring in from the sidelines. That has driven the stock market higher. The three major indices have hit record highs again this week, with the Dow finally closing above its 30,000 milestone.

In addition, stocks tend to move higher when the money supply is high. It’s never been this high before, so I believe there is significant upside ahead in 2021 – and significant potential for healthy gains.

Our favorite indicator, The Junk Bond Indicator, is in a positive configuration and the Federal Reserve intends to remain in an accommodative mode for the foreseeable future. Distribution of a Covid vaccine has begun in other parts of the world and has started in the U.S. this week- way ahead of expectations. The vaccine carries the hope of arresting the spike in deaths and the spread of the virus with the concurrent expectation of a positive impact on the opening of businesses, the economic recovery, and a return to normalcy. While all good things must (will) end, we believe that investors should take advantage of the positive stock market environment while it lasts.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

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Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

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