Look through the noise... right now it's all systems for equities markets!

What a difference a few days make. On Monday US equities markets had their biggest one day fall of the year, and by the close of business on Friday, we had just reached all time highs on the 3 major indices. A picture tells 1,000 words, so here goes:


On Monday and Tuesday the financial pundits kept on highlighting reasons why this pullback occurred, Covid 19 cases being one of the key points, but potential interest rate hikes, questions regarding earnings, and broader economic slow downs were other reasons. Funnily enough on Wednesday I was fortunate enough to meet up with a high school classmate and her teenaged children. They were asking me about day trading as many of their friends were into that sort of thing. I told them that I would steer clear of it and that it was always better to take medium to long term views on markets and you will stand a better chance of making it work out. Low and behold, I wish we met up today because I would have been able to pop up the chart of the week and explained why that was the case...

I already wrote about why I thought that markets should continue to inch higher despite inflation fears: https://thrivingwithinterest.blogspot.com/2021/06/high-inflation-yet-stock-market-up.html

However in reality, we are in the midst of a great upward cycle of earnings. So far this earnings season has seen banks report record high earnings, tech companies do very well and most outlook statements remained quite bullish. In addition, the Fed has reiterated that they will most likely keep interest rates low (which doesn't make much sense to me but hey, they are smarter so let's go with their statements as a fact rather than an opinion).

Yes valuations are not cheap and dividend yields are low:



But overall the horizon seems to have much more in terms of blue skies rather than clouds and thunderstorms. So while the low volatility days of 2019 are well and truly behind us, the medium term outlook on the markets is very positive right now. Stay invested, buy on dips and enjoy the ride without wasting too much mental energy on whether a pullback means the end of the world. It doesn't. It's just that there is a lot of money on the sidelines and invested in the markets at the same time. This can lead to increased volatility, which is has and will continue to do so...

I still like European markets as well:

https://thrivingwithinterest.blogspot.com/2021/05/where-to-invest-now-europe-of-course.html

What do you think?


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