COVID-19 came to put a stop on the longest bull market in history, a market in which for more than ten years we saw prices go towards one direction only: up. Same applies to the real estate market, where we saw prices near – or more than – double in some regions of the world. Prosperity seemed endless, but then, in March COVID-19 struck hard… And guess what?! Nothing much happened, really – at least not for now.

The corona-virus shock brought down markets, shook our confidence and ripped apart the economy of most countries. But against all the odds, following the longest bull market in history, we saw the shortest recovery period ever, unfold just in front of us. In less than ten months we appeared to have recovered all we have lost in the equity markets on March’s lows, and real estate prices seems to have no roof.

On the other hand, we have economies struggling to survive amid the severity of the imposed lock-downs throughout the world, with a global tourism sector in ruins, small retailers being crushed and several other sectors of the global economy operating under huge losses, day after day. And that leads me to the question: What the hell is going on?

To make it short and sweet, I believe we are looking at a true detachment of the markets from the economies, where cheap money, overpriced assets and a zero interest rates environment are leaving most investors with not too many options to allocate their capital, so most keep pouring money into the stock and real estate markets.

The governments also played a crucial role on laying the foundations of what I call a ‘fools market’, with the uncountable amount of stimulus packages and currency printing. Money of which inevitably landed in the hands of the big corporations of world.

This phenomena have made some companies so big, that they are now capable of masking whole indexes with their unreal valuations and results, thus distorting and making very hard for most investors to understand what is really going on with the markets.

Take Apple (Nasdaq, AAPL) for example, which recently broke the record that Apple itself had set, becoming the first company on earth with a market capitalisation of more than USD 2 trillion. Alone, it represents about 13.54% of the whole Nasdaq 100, and its valuation and results easily outweighs those of several other companies together. Though, I think there’s no argument on saying that Apple’s valuation and results alone are not necessarily a good – nor is it an accurate – way to gauge the market as a whole.

The image below illustrates it clearly. Today, the top 10 stocks of the Nasdaq 100 weights about 56.52% of the whole index value, which is currently composed by 103 different companies, of what – I must point out – not all performing as well as the FAANGs.

So, what now?

Are those who believe we are on a brink of a much greater crash than the one we had in March this year, and there are those who advocate that as long as central banks keep the money-printing machines on, the markets will keep climbing, and as there are still no signs they might do so, we still have quite a good run ahead before we start seeing signs of exhaustion. I personally find myself still invested and cautiously optimistic with what is coming next.

I believe on keep dancing while the music still on, but I’m also aware that knowing how to identify when the ‘music stops’ is key for a successful strategy. That is why here at Baronceli & Partners, we invest heavily in research, and I believe every investor should be doing the same.

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