I sold my SPY position today at $311 after jumping in at $306 in March. It's been a wild ride and I'm not sure how the market is justifying its recent gains. It just does not make sense to me how stocks are valued this high with everything that is going on. Here is my pro/con:
Pros:
-Interest rates are so low that investors have no other choice but to invest in equities
-The Fed is comfortable pumping in money and has expressed its continued support
-Consumer confidence is up and spending activity will begin to ramp back up (subjective)
-Businesses are beginning to reopen as we emerge from COVID
Cons:
-Unemployment remains a huge issue, several anecdotes (personal and on the forum) confirm that layoffs are still happening
-Consumer saving is way up, people recognize the volatility in the job market and will continue to save their money
-COVID is still a barrier to reopening and how we operate daily, 2nd wave imminent
-Riots have stifled the reopening of hundreds(?) of stores that were already suffering. Cities are boarded up and will be slow to reopen from destroyed store fronts. I think this will affect larger retailer to a higher degree
-Trade with China is up in the air with their recent actions in Hong Kong. One late night tweet could send the relationship down the drain
Maybe I'm a little to close to all the action but I am skeptical that we should be returning to pre-COVID valuations.
Interested in hearing other people's thoughts or anecdotes - especially those that have skin in the game!
Don't think you're being too skeptical right now.. cases can be made on either side. Hard to bet against the govt but also challenging to be optimistic that the bull market will continue. Most interested in the fixed income space because of the $2 trillion CARES Act.. $454 billion goes to the Treasury Secretary to make investments in SPVs. Some of this will be allotted to buying corporate debt and ETF's. Which is nuts, but the fun doesn't stop here. The fed can put up to 10x the original investment in to absorb any losses.. that's north of $3 trillion injected into our fixed income markets. Just waiting for governments around the world to publish the size of their budget deficits. Ratings agencies follow strict criteria like debt/GDP ratios, which means downgrades are coming.. Glad to have a front row seat as this all unfolds.
Thanks for the insight, I have a lot of catching up to do regarding Fed stimulus and ratings actions. It feels like there is a healthy appetite for corporate debt already - at least in spaces I'm familiar with.
The way the media has flipped in 7 days on lockdowns is giving investors confidence that we’re not shutting the economy down. Until just now, a large portion of the elite in this country insisted we stay locked down indefinitely. That’s now been thrown out the window. Layer on unprecedented increase in the monetary supply, potential debt monetization, and the fact that consumption is broadly down, and you see asset price inflation
Does anyone have any great resources to truly understand the support the Fed is providing and how it has been affecting the markets? Thanks!
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