It has been 15 days into the new year, but it feels like a year’s worth of events has already occurred. Most notably:
Strip what happened in 2020 out of the question, and this would be run a racket on the equity markets. However, it seems like nothing can scare off investors in this day in age.
Equity Markets in the United States continues to edge higher, with the Dow Jones and the S&P 500 up 0.1%, with the NASDAQ saying as is. European equities too end slightly higher, with the DAX 30 edging up 0.4%. With turmoil continuing to disrupt the world, why are investors continuing to plow money into equities?
With the Federal Reserve stating that they “are not even thinking about thinking about raising rates,” alongside the introduction of their new tool of letting inflation run higher than their mandate portrays that low yields are here for the foreseeable future. The time to raise rates “is no time soon,” Powell states.
This has forced many managers to search for yield across equity markets. However, this can’t be the only reason, as real yield has been low for the past couple of years, even before the Coronavirus. Mario Draghi, former ECB President, was known for saying that “for rates to be higher in the future, they need to be low today.”
Many companies continue to thrive even amidst the Coronavirus, notably technology firms such as Salesforce, Facebook, and Slack, alongside retailers such as Walmart and Amazon. Their current price premium reflects their ability to generate free cash flow in recessionary periods. Today, value equities in the industrial, financial, and energy sectors led the edge higher today.
The word “reflation” has recently been the buzzword as of late, providing an extra boost to equities. Scott Knapp, chief market strategist of CUNA Mutual Group, stated that “everybody acknowledges the high valuations, but most people say yes – but the stimulus?”. He further continues stating that “Markets are anticipating that reflation is under way.” Reflation may help the backbone of the US Economy, the consumer, to thrive once again and pull the US economy out of the slumps.
Motley Fool, an advocate for long-term, stock-picking mantra, believes that “time in the market, is better than timing the market,” alongside the belief that profitable businesses with high valuations should still be invested in. With a massive influx of retail investors, it would not be surprising that many of them share the same mentality.
Are you plowing your money into stocks?