Market View – Divas, Dramas & Record Highs

E L Emerson

Despite the global nuclear divas driving geopolitical turmoil, the bewildering tos and fros of Brexit dramas-come-lately, and the shoogly pegs upon which oil prices, cryptocurrencies, interest rate changes and market pessimism have swung, every major US index has managed to hit record highs in the first week of 2018.

Go figure.

The 30-member Dow Jones surged more than 200 points and, along with the Nasdaq posted their best respective starts to the year since 2006.

And as the three amigos of the Dow, S&P and Nasdaq arrived at Friday’s close with 2.3%, 2.6% and 3.4% gains in that order for the week, market sentiment rose with it, posting a 58.9% bullish reading according to the weekly AAII investor barometer:

Now, looking at the above chart you may notice a fair few more valleys than peaks, which represent recession-level lows in bullish sentiment for the majority of the stock market’s near nine year recovery.

And all the while these same indexes have trodden an upward path, stopping only occasionally to sit and shake the nervous fleas from it’s dog’s arse of a slow recovery.

So, riddle me this: In what is the lowest interest rate environment in modern history, and with break-even and oftentimes negative yielding bond funds on offer, why have investors opted to pour their money into these things in mindboggling volumes of billions and trillions, respectively, instead of the bull market?

Impossible to say, really, beyond rampant fear and lingering scars from the last recession.

What we know is that there remains multi-trillion stock piles of euros, pounds and dollars in deposit accounts across the western-ish world, the sum total of which is roughly equivalent to America’s $20 trillion debt. 

That, and the tide has officially gone out on those maintaining that corporate buybacks were propping up this market, as those bathing in that excuse are now standing abashedly naked as this strategy had been declining throughout 2017 (pre-US tax bill).  

But let’s not get ahead of ourselves. The hiccups, dips, deep dives and (hopefully) upward mobility are all still ahead; the former will once again shake the fleas off, and the latter will benefit those who stayed the course or picked up what was left on the run. 

E L Emerson, Editor, HNW

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