Three Reasons Investors Are Eating US Equities for Breakfast
There's no denying that from a macro perspective, the US financial markets are on fire -- here's why.
Humor aside, it is clear that the markets are getting a bit giddy here. And although this often leads to intermediate market tops, it is also symbolic of the strength in the marketplace, especially from a macro perspective. In that vein, here are a few observations that I think bear mentioning:
- Large amounts of retail traders have missed the “hated” rally. This is nothing new and something that has been well-documented. However, at these “heights,” it is that much more painful to know that many moms and pops who missed the majority of the US equities rally are just now getting in. Put one in the win column for the Fed… or is it? Depends on if you are an informed, active investor or one of the moms and pops making decisions based on psychological pressures. Whether it’s this month, later this year, or next year, retail investors will find their way into the marketplace… likely with horrendous timing.
- Money is really flowing into our marketplace. Europe is likely a significant contributor, with fear being the motive. In short, money needs to find a home. And one that feels the safest of the options available. Since economic numbers do not fully justify the move higher in US equities, it is likely a combination of asset allocation rotation and currency/market allocation rotation.
- Bullish sentiment is finally rising. Last week’s AAII Investor sentiment survey jumped over nine points to 40.8% and should move higher again when released later today. It is amazing how disconnected many common correlations have become (eg, the US dollar), but this one has been spot on: Although moving higher, it has captured the essence of the “hated” rally quite well.
As a bonus, I’m including a chart of the Dow Jones Industrial Average (INDEXDJX:.DJI) priced in euros. You will note that it has yet to reach new all-time highs. Should this occur, it would likely be a sign that capital is fleeing Europe, the euro is dropping, and US equities (and the dollar) are benefiting.
Thanks for reading. Trade safe, trade disciplined.
Editor's Note: Andrew Nyquist is an independent investor based in the Minneapolis area. This article originally appeared on his investing and economics site, See It Market.
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