Last week we saw a continuation and acceleration of the strong market rally that began the first of the year. There are fundamental economic reasons for this rally but what I feel the most is a shift in investor sentiment.
Animal spirits is what some commentators call the energy of a strong market rally, and there’s truth in that reference. Following more than 12 months of negative news and emotions there reaches a point where investors simply get tired of being negative and it was on full display last week by the head of the herd – Federal Reserve Chairman Jerome Powell. The Fed concluded their meeting last Wednesday with the anticipated 0.25% interest rate hike but what wasn’t anticipated was a cool, comfortable, and confident Powell during the press conference. I watch every press conference and I can tell you that over the past several months Powell looked dour and extremely concerned in every one of them, but not last Wednesday. He was transformed as he and his committee have witnessed the beginning of economic success in his very unpopular interest rate increases. His energy was contagious, filling the financial markets with his confidence, and sending investors on a stock buying spree.
The Nasdaq Composite Index has shot up nearly 20% from the start of the year and the S&P 500 nearly as much from the October lows. It’s very possible that the market rally may take a breather in the coming weeks, but I do believe there’s a high probability the lows of mid-October were the true lows of this bear market cycle. In fact, the British stock market (FTSE 100 Index) reached all time new highs on Friday and from a technical point of view are out of their bear market. It could take the US stock market 12 months or more to regain our all-time highs so let’s enjoy the steppingstone victories along the way.
Photograph by: Jérémy Chevallier on Unsplash
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