Why Is the Stock Market Still Holding Up So Well

In the effort to take responsibility for our lives, we seek to control whatever we can to help us relieve stress and give us confidence.  Unfortunately, it’s all too easy to focus on things we actually cannot control instead of the things that we can.

The Martin Luther quote said it well, “You can’t stop the birds from flying over your head, but you can keep them from building a nest in your hair.”

As it relates to our personal finances, seeking the truth and diving deeper into the facts will help you gain the control and certainty to know what’s right for your situation.


Key Takeaways

  • The buoyant stock market is NOT an optical illusion, but you need to understand why it’s behaving as such.
  • The Fed alone cannot prop up the markets and economy forever.
  • There are great opportunities in every economy—beyond the world of stocks.
  • Having a well-stocked “opportunity fund” is just as important as having emergency supplies and 6-months’ of living expenses on hand.
  • Insurance can help with all of the above.

The jobless rate is higher than at any time since the Great Depression.  Schools and universities may not reopen in the fall. Businesses are shuttered.  Airlines, hotels, bars restaurants and gyms are at 10 percent of capacity and millions of people lucky enough to have jobs are afraid to go to their places of work.  So why did the NASDAQ recently hit its all-time high?  How can the S&P 500 be at breakeven for the year after being down almost 40 percent as recently as late March?


3 key factors explain why

  1. Infusion of additional liquidity. Clearly the Fed’s decision to keep pumping money into our financial system has given a boost to the market and the overall economy. More importantly, investors remain confident that the Fed will continue to do whatever it takes to ensure our financial system doesn’t fall into a full-scale depression. The Fed is already buying massive amounts of bonds and is well positioned to buy stocks if necessary. Investors have been buoyant knowing the Fed will pull out all the stops to ensure the stock market doesn’t collapse.


  1. Expectations of a return to normal. Obviously, some states are doing a much better job of navigating the pandemic than others, but there remains hope that things will return to normal sooner rather than later. When looking further down the line (say 6 to 12 months), people in general, and investors in particular, are optimistic that things will be much better and that a COVID vaccine will be available. More on that in a minute.


  1. Lack of good investment alternatives. With fixed income, money markets and other “safe” investment yielding essentially zero, many Americans are hard pressed to find anywhere else but the stock market to put their money (legally) for decent returns. They realize that warehousing their cash in banks, money markets and Treasuries won’t even keep pace with inflation. Therefore, more assets than ever are moving toward stocks—despite the inherent risks.


Reality check

Stocks are chugging along, but now is a good time to keep money on the sidelines, since there is a ton of uncertainty that could push the stock market closer to aligning with the overall economy. Keeping yourself liquid will also give you “opportunity money” to take advantage of special situations that arise during downturns like today. For instance, a homeowner might need to sell in a hurry to raise cash–and you could turn that house into a valuable rental property. Business owners are more likely to sell during a downturn and it can be an excellent time to get great deals on a new car or equipment for your business.


How insurance can help

If you have a whole life insurance policy, it is a good time to store additional cash in that policy. You will earn a higher yield from your policy than you will with “safe” equivalents such as banks accounts, money markets and Treasuries, while still protecting your most valuable assets.  Historically, the cash value has earned 2-3x bank rates, and the returns are tax deferred and can be tax-free.  Further, you can easily gain access to those funds via a withdrawal or loan since those funds are guaranteed by the life insurance contract of your policy.  See more about Life insurance as a valuable asset

Also, consider utilizing annuities to protect some of your assets from loss, especially if you are within 10 years of retirement.  Annuities can be designed to never lose value when the market drops, and they can earn some upside when the market advances depending on the type of annuity you have.  Additionally, annuities can be extremely efficient for generating income that you are never in danger of outliving; think of it like a steady paycheck.

Annuities come in many varieties. It is important to get the help from an expert to help you choose one that fits your situation and priorities.

No one knows how long the Fed will continue supporting the financial markets. Also, look at how many states have had to retrace their steps after re-opening too aggressively–it shows we’re a long way from being out of the woods. I know there are some promising vaccines on the horizon, but vaccines take five to ten years to develop, test and get approved. Trust me I know. I worked in the pharma industry for many years.



There are opportunities in all types of economies. The key is setting realistic expectations about how long these challenging times will last. You want to have enough emergency cash on hand to get you through the tough times—and to seize great opportunities that come your way during times of distress. As the old saying goes, “good luck is what happens when preparation meets opportunity.”