Wall Street has been partying like a bunch of guys at a bachelor party, thanks to the Federal Reserve’s open tab. But the “morning after” is likely to be painful, as the worsening coronavirus pandemic continues to wreak economic damage.

Stocks closed second-quarter 2020 on June 30 with their best quarterly performance in over 20 years. The Dow Jones Industrial Average ended the second quarter with a 17.8% gain, the Dow’s largest quarterly rally since the first quarter of 1987, when it soared 21.6%. The S&P 500 posted its biggest one-quarter surge since the fourth quarter of 1998, climbing nearly 20%. The tech-heavy NASDAQ Composite spiked 30.6% in Q2, its best quarterly performance since 1999.

As you can see from the following chart, the three indices had a darn good time:

A major factor behind the NASDAQ’s outperformance is the sentiment that tech stocks are positioned to dominate the post-pandemic economy, as consumers in quarantine get even more accustomed to tech amenities that facilitate remote working and shopping.

However, as the third quarter gets underway, it makes sense to pocket some gains, especially from mega-cap tech stocks. Wall Street seems to think the worst of the pandemic is behind us, which contradicts the facts. COVID-19 cases and deaths in the U.S. are dramatically rising. Federal Reserve Chair Jerome Powell has committed the central bank to shoring up the stock market, but the Fed can’t pursue quantitative easing forever.

The 2008 bailout, redux…

When stocks crashed February-March due to coronavirus lockdowns, Wall Street panicked and demanded that the Fed step in with major stimulus. Powell and his colleagues in the Marriner S. Eccles building obliged and threw open the spigots.

The Fed immediately fired-up emergency lending facilities such as the Term Asset-Backed Securities Loan Facility, the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Dealer Credit Facility, the Secondary Market Corporate Credit Facility, and the Primary Market Corporate Credit Facility.

Do those bureaucratic names ring a bell? They should. All of these entities were called into service by the Fed in response to the global financial meltdown in 2008. But here’s an investment truism that never changes: When asset prices inflate far in excess of their underlying fundamentals, they will eventually fall back to their intrinsic worth, no matter how strenuously federal policymakers work to prop up valuations.

The hope of political incumbents in Washington is that the Fed’s frantic stimulus will buoy the stock market at least until the November elections. But what happens if the coronavirus gets worse over the summer, crushing the economy even further and triggering a wave of personal and corporate defaults? We’re about to find out.

Read This Story: Are You Ready for the Financial Crisis of 2020?

The short-lived rallies that occurred during the 2008-2009 financial crisis are instructive. On several occasions, upward bursts in stock prices turned out to be bear market traps that were followed by new lows.

The blue-chip stocks of multinational corporations thrived in the second quarter. The Fed purchased the debt of many large companies that didn’t even need the help. But devastated small businesses got crumbs from the feds. Small businesses represent more than 99.7% of all U.S. employers. They employ half of all private sector workers. They account for up to 80% of the new jobs created annually in the country. The current agony of the small business operator can’t be ignored indefinitely.

Wall Street and Main Street have become disconnected in many ways. For starters, most Americans don’t own stocks (as a stock investor, count yourself wise and fortunate). However, the woes of average consumers and small businesses during the pandemic will eventually come back to haunt the giddy stock market.

Consumers make up nearly three-fourths of U.S. gross domestic product. We can’t have a functioning economy without employed consumers who have money to spend. Meanwhile, Congress this week refused to extend the additional $600 per week in federal benefits that will expire at the end of July.

Whether you think extending enhanced unemployment insurance is smart public policy or not is a moot point. The Congressional Budget Office projects an unemployment rate of 16% this summer. Millions of Americans are having trouble paying their bills. In recent weeks, there’s been a surge in missed rent and mortgage payments. New U.S. COVID-19 cases rose by nearly 50,000 on Wednesday, marking the biggest one-day spike since the start of the pandemic. Those are simply the facts.

Sometimes I watch the hyperactive, bug-eyed showmen on financial television and I think: What planet do they live on? These are the same folks who told us in late 2007 that the sub-prime mortgage market would be a-okay. They insisted that firms such as Bear Stearns would be just fine. Now they’re telling us that the worst of the pandemic-induced economic downturn is over and investors should party on.

I prefer being an optimist, but it’s my duty to warn you that the second quarter’s robust performance is unlikely to be repeated in Q3 and Q4. The second half of 2020 is on track for a correction, if not worse. So what’s an investor to do? Increase your exposure to safe havens. Our analysts warn that another market crash could be around the corner, but it’s not too late to protect your hard-earned nest egg (and still make money at the same time).

Our experts have unearthed a group of safe haven stocks that won’t be following the economy to the bottom. Want to insulate your portfolio from another market shock? Click here for our special report.

In the meantime, when it comes to risk-on assets, now’s a good time to push away from the bar.

Questions or comments? Drop me a line: mailbag@investingdaily.com

John Persinos is the editorial director of Investing Daily.