“Stocks around the world continue to best 1 record after another, we have this message: it is not over yet as the sharp increase in corporate earnings and strong central bank support will keep the Bull running due North” “— Paul Ebeling
Globally, stocks allure during a continuing economic rebound is proving very hard to resist, even though the MSCI All-Country World Index is + 12% YTD to an all-time high.
Some market participants and pundits caution about risks of a dip given the valuations, the sharp bounce in corporate earnings and strong central bank support will keep the rally alive.
A Key reason behind the rally in stocks is that there is still nothing as attractive as out there, given that developed-market government bond yields lackluster and credit spreads have tightened to their lowest levels in 10 yrs +.
That, coupled with a lot of pent-up demand, now that economies are reopening following last yr’s lockdowns.
As reported here, Goldman Sachs’ strategists recently flagged that US money-market fund assets have ballooned to a record $5.5-T during the VirusCasedemic, showing that there is a whole lot of cash on the sidelines.
Given strong support from global central banks, money will continue to flow into stocks.
Looking Ahead: Investors have a preference for cyclical and value stocks overall, which are set to benefit most from a rebound in growth. In terms of regions, some professional investors prefer Asia-Pacific, sans Japan, others Europe, which are set to get a boost , and Japan, whose stock market has lagged.
Overall, market participants expect the world’s central bank policies to remain accommodative in order to support economies emerging from the virus chaos.
Globally, profit expectations have bounced back to pre-virus marks, and nearly 50% of S&P 500 companies have raised their F-Y outlook over the past 3 months, 1 of the highest percentage levels since Y 2010.
Within stocks, cyclicals and value should continue to benefit from the likely surge in consumer spending, but investors should also consider secular growth stocks, such as mega-cap technology. As these firms will benefit from a permanent move toward cloud computing and dependence on technology.
While valuations might be seen as a barrier to further gains by some, overall investors are not very worried.
The Big Q: Why?
The Big A: Because equity valuations will decline driven by earnings rising faster than stock prices, instead of by weak markets.
The Cboe Volatility Index, or VIX, has been languishing at its lowest mark since before last yr’s VirusCasedemic-fueled selloff.
For some market watchers, including Shayne and me, any pull-backs will be buying opportunities.
We see really strong earnings growth, not just for this year, not just the bounce back, but actually going forward into Y 2022 and into 2023 too.
These factors are the reasons why we are still looking at a Bull market ahead.
Have a prosperous week, Keep the Faith!