Economy in recovery, but stocks gone too far ahead

Once in a month or two, we use to publish an article about the general situation of the US economy.
We all know about the catastrophic drop due to the Covid-19 lockdowns and limitations, as we are aware of the strong recovery started in Summer 2020.

But we shall not talk about this economic recovery in this article, because that is not very important for our investments at the moment. Here's why:

Financial markets usually lead (anticipating) the behavior of the US economy. This has happened also in February, when indexes dropped sharply, even before the collapse of the economy due to Covid.
Then again it happened in mid March, when stocks made a V-shaped revert, and boomed for the entire Spring and Summer 2020.
The real economy is actually recovering fast, but not as fast as markets: many sectors are still lagging, some of them will be damaged for years to come, few will not heal anymore.

1. A partial justification of this distance (markets - economy) is due to the straordinary performances of Tech giants, which undoubtedly benefitted from the new remote-economy which makes technology even more important for people and for business
2. Another strong motive is the liquidity injection operate by Central Banks, and
3. a final point is the lack of alternative for investors: put money on stocks (and maybe precious metals) as safe havens for future.

In this scenario, markets seem to be not just one step ahead the economy, but two or three steps, somehow anticipating an explosive growth of profits of corporates which is just hypotetical.

Because if you look at the above list, only the first point is supposed to last for the long-term, the second and the third one are more like a drug, maybe beneficial, but probably temporary.

Markets getting faster and faster

That's why we started this article, stating that the ongoing recovery of the real economy is not so important at this stage: it's been already priced in the stock markets weeks ago, it's ancient history already.

So everyone is now predicting a crash of the markets, complaining about this growing bubble, blaming the FED for the future problems (debt-related) which next generations will have to pay.
This is politics and we do not express our opinion about this topic. We take the FED interventions as they are, and we just want to evaluate them in our investments' perspecitve.

So there will be a crash, or at least a sharp drop, reconnecting high evaluation of tech stocks and real economy. Yes there will be, but none knows when.

The HSTv2 model has performed a terrific 96% in this year 2020 at this very day, after a magnificent 2019 (+97%).
We won't anticipate any move because even if this is really a so-called "bubble", none can predict the top of it, and it is definitely still growing, healthy or not healthy being its rise.
So we shall follow our strategy, staying Aggressive Long until our model is saying so, and being aware that we shall suffer some drawdown when the drop begins and we will stay Long for some more days.

As a sideline support, keep an eye on volatility index (VIX) and trading volumes, which usually grow when a sell-off is starting.
Investors could manage the size of their investment in those days.

We suggest members to pay attention to our daily signal on Private Telegram Channel during next days, as the timing of our next trading moves could be very important and determinate the performance of last part of 2020.

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