Like a flood washing away an Orc behind a dam, market shorts are struggling to find their footing after its collapse. Despite widespread speculation about the economy and concerns that the market is “overvalued,” likening it to either the Tech Wreck from 2000-2002 or the Financial Crisis from 2008-2009, the market continues to trend upward. But should investors be worried? We don’t think so. This could be the start of a truly historic bull run. While it may end badly eventually, that day could be far off. First, let’s look at the economy, which many readers will recognize from www.econpi.com, a site I have referred to previously. A quick refresher: http://www.econpi.com offers a graphic representation of the economy, making it easy to see where the economy has been.

Before the Covid-19 outbreak, the Mean of all the data coordinates (Red MOC) and the Leading Indicator plots (Green LD) placed the economy in the expansion quadrant. The average for June showed that the economy was in recession for both May and June. However, in the first week of July, we shifted into the recovery quadrant. This is a significant change in a short amount of time. Despite concerns about the economy shutting down, it is widely acknowledged that with masks and social distancing, most businesses other than bars and fitness clubs will be able to reopen, albeit in a limited capacity. However, I disagree with pundits who say it will take years for businesses to return to normal. The surge of consumers to beaches, restaurants, and bars suggests to me that consumers are eager to return to their normal lives, with the exception being the airline and cruise industries.

“Don’t Fight the Fed” is perhaps the most universally applicable piece of investment advice. As Fed Chair Powell stated, “The Federal Reserve is strongly committed to using our tools to do whatever we can for as long as it takes to provide relief and stability to ensure that the recovery will be as strong as possible and to limit lasting damage to the economy… The Fed will continue to use these powers forcefully, proactively, and aggressively until we’re confident that the nation is solidly on the road to recovery.” The Fed has announced several facilities to buy corporate bonds, asset-backed securities, ETFs, and even individual securities for the Federal Reserve account. This is an unprecedented move, but it demonstrates the Fed’s unlimited resources and apparent adoption of Modern Monetary Theory.

However, there are still concerns, and volatility can be expected over the next couple of weeks as second-quarter earnings are announced. The market is filling with fuel like a California forest waiting for a trigger. The potential catalyst? Hopefully, a treatment or vaccine for Covid-19 available to the public. The market is predicted to be volatile over the next six months due to constant Covid-19 news, the election, riots, and protests, but the biggest test will likely be whether schools open and stay open in the fall. If you have cash on hand, we recommend considering several entry points over the next few months. Short-term predictions are difficult, but the long-term outlook is very bullish.

This advice is coming from Mr. DeShurko, the Managing Member of 401 Advisor, LLC, an independent registered investment advisor, and Jim Kilgore CFP ®, an Investment Advisor Representative of 401 Advisor, LLC. They are also registered representatives of Ceros Financial Services, Inc (Member FINRA/SIPC). The views expressed in this content are those of Mr. DeShurko and do not necessarily reflect those of Ceros Financial Services, Inc., its employees, or affiliates. Past performance does not guarantee future results, and all investing involves risk. Before investing, consult with an investment professional. Be sure to check out Jim’s new podcast: https://podcasts.apple.com/us/podcast/401-advisor/id1511923745. For questions or suggestions for future podcasts, feel free to email either of us.

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