Investor confidence fuels market growth, but some factors may not have been priced in
Bull market growth continues spurred by supportive measures
- Despite US social unrest and rising concerns over unemployment, markets are continuing to grow
- We do see a few hurdles ahead and currently the market does not seem to be reflecting these
- Investors may be overlooking the lasting impacts on businesses and employment, which are likely to persist
Markets have largely continued to show impressive upward momentum this week despite US social unrest and rising concerns over unemployment figures in coming months. It seems markets are ignoring these warning signs and simply jumping on the investor bandwagon to join the Bull party. In our opinion, from a global standpoint, we do see a few hurdles ahead and currently the market does not seem to be reflecting these.
The key driving factors behind the recent recovery are Central Bank support and the falling numbers in virus cases. However, investors may be overlooking the lasting impacts on businesses and employment, which are likely to persist, and it’s this recovery that will determine the speed of the economic rebound, not speculation.
On the most part, valuations are priced towards a quick correction and I’m not sure this is pragmatic considering the uncertainty that lies ahead. The S&P is priced at levels not seen since the early 2000s and has to be questioned in such a time.
Despite this, looking from an alternative perspective it’s important to remember over a quarter of the S&P is weighted towards information technology stocks. In some cases these have seen growing demand during lockdown due to consumers at home utilising technology to continue day to day in the best way they can, therefore reflecting the higher valuation.
There is also an argument over whether this may be the new norm taking into account many factors, including the possibility of a growing online consumer culture post-virus which presents an argument against concerns over high valuations. Nevertheless, considering all of the battles we’re likely to be facing over the coming months, it is fair to say investors are optimistic for now.
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