A downturn in the Dow Jones industrial average and the S&P 500 index on Tuesday halted the longest earnings per share gains in months, but a major concern for investors remains: is there a major correction ahead?
Even some bullish investors have called for the shares to be downgraded as a kind of catharsis for the next stages higher and a relaxation of some of the insane, retail-inspired commitment that has repeatedly sent shares to new records amid the COVID 19 recovery.
A brief downside that began in late January, coupled with the trading spirit surrounding GameStop Corp. GME,
and AMC Entertainment Holdings AMC,
the markets tested some short-term trend lines, but recently the markets managed to rebound to deliver a non-spectacular return in the early course of a year crammed with uncertainties.
The Dow Jones Industrial Average DJIA,
rises by 2.5% so far this year, the S&P 500 SPX,
enjoys a more pronounced profit of more than 4%, while the Nasdaq Composite COMP,
and Russell 2000 RUT,
the index reached its tenth record in 2021 so far on Tuesday.
The annual rise in large-cap capitalization Nasdaq, by 8.7% and the Russell 2000, by 16.4%, reflects a strange convergence of investor bets: Those betting on further prosperity in COVID-tested large-cap large-scale equities in March the aftermath of the pandemic in the U.S. worked, along with bets for a significant surge in small, small economy-sensitive stocks represented in the Russell.
In both cases, cautious investors and those worried that the good times may not last forever are getting the next big slump for equities, and they are chewing on how it can play out.
Earlier this week, Michael Wilson of Morgan Stanley said in an interview with CNBC that it was “short, so if you had a wink, you missed it,” referring to the stock market crash in late January. .
“It looks like it was preliminary, and I mean, the markets are pretty strong at the moment, and that was it,” Wilson said.
‘There’s great liquidity, there’s a very good and very understandable story behind the scenes. Meaning, we have a strong economic recovery that is visible to all. The earnings season has been good so far … and people have bought into it, ‘said Morgan Stanley analyst.
However, he warned that the market remains in a “slightly fragile state”, and warned that leverage in the system could make 3% or 5% more of the norm.
However, Wilson said that the rise of individual investors in financial markets would be a force to be reckoned with, and that it is currently the marginal buyer on Wall Street who is keeping asset prices alive.
Keith Lerner, chief market strategist at Truist Advisory Services, said concerns over a stock bubble were exaggerated and were not supported by current fourth – quarter earnings results, which he said would be the best since the 2008 financial crisis.
Truist Advisory Services Inc./SunTrust Advisory Services Inc.
“Although foaming parts of the market are detached from the fundamentals, we do not see the bubble conditions wider,” Lerner wrote in a research report on Tuesday.
‘Instead, we see a stock market trading at a premium to historical valuations – partly justified by low rates, a shift in the sector’s composition to higher valued growth sectors, supportive monetary and fiscal policies, as well as cheaper access to markets ( ie the secular decline in commissions and fund fees), ”Truist analysts added, noting that the support of equity value was also a lower barrier to access for individual investors.
Meanwhile, Daniel Pinto, co-president of JPMorgan Chase & Co., told CNBC in a Q&A that he expects the stock market to grind higher.
“I think the market will gradually weaken during the year,” he told the news network. “I can not see a correction soon unless the situation changes dramatically,” he said. He describes possible downturns as mini-corrections that will not necessarily change the overall bullish trend.
What can change things?
Naeem Aslam, chief market analyst at AvaTrade, said in a Tuesday report that optimism in the US market is driven by three players: support for monetary and fiscal policy, progress with COVID vaccinations and the solid quarterly results.
“Actually, it looks like the stars are in line, and there is a strong chance of another bull march,” Aslam wrote.
“In other words, we need to change something important in the current catalyst to shift the market narrative among traders that could cause a slight setback – let alone another serious correction,” he added.
According to William Watts of MarketWatch, some experts point to the 2009 stock market as the closest parallel to the current stock setup. Watts quoting Tony Dwyer, chief marketing strategist at Canaccord Genuity, as noting that 2021 could play out more like the post-crisis scenario seen in 2010, which would point the way to a ‘solid year’ for the market, but with a bumpy ride thanks to multiple first-half corrections. ”
Some of the bumps may emerge from the bond market, with the TMUBMUSD10Y for ten years,
and 30 years of Treasurys TMUBMUSD30Y,
to test recent returns and put pressure on stocks.
The so-called reflection trade, where returns are rising and attracting investors to investments that can thrive in better economic times, has so far had a number of false onslaughts for investors.