What in the world is going on out there, and what should I do with my money?  This topic is always on my mind, but I imagine lately it’s been heavy on yours too.  The world looks upside down, and the stock market is no exception.  Many can’t believe it’s come back to these levels, even if it was driven more by a limited number of names like Amazon, Apple, Tesla, and Zoom.

I’ve long highlighted in this column that we may not see the end of this expansion cycle in the stock market until we saw a larger amount of euphoria.  More times than not, good times end with excess and euphoria.  These elements had been mostly missing, until now.

As strange as it is to say this, we now have the euphoric attributes and excess that could lead to a major market top.  The single biggest reason I believe, through hindsight, the stock market has managed a comeback is because we have actually seen personal income rise during this crisis.  Policy makers used what they learned in the great financial crisis of 2008, and acted swiftly to the pandemic.  This has either been one of the most successful policy moves in our financial history, or merely bought us time to prepare for tough times ahead.  I hope it is the former, but afraid it’s the latter.

Many saw the plunge this March as a generational opportunity when the older and tried and true professionals were pessimistic.  We are now seeing new celebrities mock the financial system.  I’ve seen college student showing how they trade stocks during class to pay off their school debt.  I would love to believe that is possible for many, but sadly that usually ends poorly.  Money easily obtained is easily parted with.

Maybe I’m not giving enough credit to these bold policy moves and shift in government thinking.  Maybe moving towards more central planning and larger companies has an economic benefit in the early stage. Maybe we do get back to normal over the next 12-18 months, and that would likely keep the stock market at these levels or higher.

I do think we could see another round of stimulus from the government before the election.  Some form of a vaccine is likely to be administered in the next 6 months.  The Federal Reserve has said they plan to be very accommodating for longer than we can imagine.  People are generally tired of being cooped up.  All this could lead to conditions that are generally improving month over month.

If pressed on how this ends, I think we are going to see the market put our jaws on the floor as it continues to rise to a level we didn’t think imaginable.   That would confound the most amount of people.  A concept I’ve discussed a number of times here.

For that reason, I believe staying invested is the right move for now.  We want to watch how things transpire over the rest of the year.  But, if we see the recovery faltering, we want to be prepared to get defensive.  This could be a game of musical chairs where there are 100 people and only 10 chairs.  I wouldn’t stray too far from the chair right now.

Should my fears be correct, we will look to play defense, and invest in the things that benefit during these times, limited as they may be.  Having a defensive nature during a large market swoon will help us better take advantage of weakness, rather than making decisions from stress and anxiety.  We will then look to invest in parts of the economy that will most benefit in the next recovery cycle.

We believe that may be quite a bit different than what we have experienced over the last decade or more.  We believe the recovery will be singularly focused on jobs, jobs, and more jobs.  The potential result of the policies being implemented today, that show no signs of abating, could lead to higher inflation than we’ve seen in the past few decades.  This would mean a more industrial lead recovery.  Things like oil, lumber, and metals could provide great returns.

Many portfolios are not positioned for these events and changing dynamics.  We believe that we will be able to provide a smoother ride that helps individuals execute a good return by being aware of these changing conditions.