A relentless climb higher for all the major indexes

SAS Financial Advisors, LLC |

Last week, the SAS Newsletter highlighted the market nearing record highs, and the two Americas: Main Street and Wall Street. SAS remains cautious amidst the ever shortening news cycle.


This week we saw a relentless climb higher for all the major indexes. Zoom reported earnings this week that were a blowout rising 42% this week. SAS has a paid Zoom subscription! Who knew 25 weeks ago that we would be in this state of suspended animation? Also this week Barron’s has columns on stock bubbles and income inequality. All sorts of reasons that markets are not in a bubble- historically low interest rates, Fed liquidity, fiscal intervention, vaccines… It’s not a bubble until it is! Markets are impossible to predict going forward and analysts are brilliant in hindsight! Bubbles fit that definition.

On the issue of income inequality, working Americans need good wages so they can spend their income buying the goods they and other Americans manufacture and produce. Higher income Americans just can’t spend all their income, emphasizing the struggle between Main Street and Wall Street. Quoted in the Barron’s column as believers are Henry Ford and Mariner Eccles (a Republican head at the Fed during the depression with Franklin Roosevelt as President). 

SAS Outlook

Visibility for the rest of the year and projections into the first quarter of 2021 remain muddled. America needs to feel confident about managing the pandemic first to move the economy forward. One of the biggest risks for the rest of the year is uncertainty about results of the election. Believe it or not, betting your portfolio on the results of any election has been a bad strategy historically. But uncertainty about election results is a different can of worms. One of the best investment hedge strategies is a conservative asset allocation which is what SAS uses for our clients. We are willing to give up big gains to limit big losses. The pain of losses is twice as great as the satisfaction of the gains

Current Events

In the meantime, tension continues to increase over racial injustice. Unfortunately, instead of addressing underlying issues, we get more racial division. While this issue is difficult to address, denial and accusations don’t help. 

Federal Reserve

Recently, the Federal Reserve amended their approach to inflation and full employment. Historically the Fed targets 2% inflation. Since the financial meltdown, inflation has been under 2% regardless of historically low unemployment. Now the Fed says inflation can run higher than 2% with unemployment low because of how long inflation has stayed below the target. This was received as further evidence of “the Fed will do whatever is necessary to support an economic recovery.”

The danger is that markets can behave like a pressure cooker with a release valve. The release valve is letting markets let off steam when asset values can push inflation higher. Has the Fed removed the release valve that keeps inflation and assets values reflecting real markets? We shall see.

For this and all SAS Financial Advisors newsletters, check out our blog at www.sasadvisors.com/blog