Global stocks rally in powerful run
15-11-2021
George Lucas, Raiz Group CEO
This week saw US equities continue to lead the worldwide rush into stocks that has almost doubled the MSCI All-World share index, which tracks equity performance in 50 nations, since March 2020.
This is one of the most powerful runs for global equities in history, with the S&P 500 this week sealing its longest streak of hitting record highs since 1964, before pulling back slightly.
At the same time, speculative digital assets such as bitcoin and “meme coins” like Shiba Inu have shot higher, taking crypto market value to about $3tn from less than $500bn at this time last year.
There appears to be a lot of FOMO in the financial markets.
Central bank stimulus fuels global growth
Obviously, a key driver of the rally has been the deluge of central bank stimulus measures taken to steady the world economy during the pandemic last year, ensuring a strong economic rebound.
Additionally, the upswing in financial and cypto markets appears to have been supercharged by a boom in retail trading that began when many people faced severe social restrictions last year. This has continued even as economies reopen.
Rising signs of euphoria in stock market
The performance of these risky assets could also be a warning sign that the stock market is becoming somewhat detached from reality, or euphoric. So prepare now for a good downturn in March 2022.
Another sign of increasing euphoria is the equity options market in the US. Earlier this month a record $2.6tn worth of options — derivatives that enable investors to make magnified bets on or against stocks with borrowing — changed hands in the US, the highest trading volume on record.
Again, retail investors are a major factor behind the surge in option trading. Even professionals and central banks don’t fully understand risks associated with options, let alone retail investors.
So buckle up. Globally, $865bn of new money has been pumped into equity funds this year, according to financial intelligence service EPFR. That is already almost three times the previous full-year record, and more than two decades’ worth of combined inflows tallied by the data provider.
Market rally could continue into year’s end
Looking ahead, the rally should continue in the US for some time yet, especially as US companies start buybacks after the enforced blackout when quarterly earnings are reported. Fund inflows also tend to be strong in the final stretch of the year, with stocks typically rallying into year’s end.
The dampener could be the options/derivatives issue. With options/derivatives at some point there is leverage on bank balance sheets and this leverage is sensitive to changes in interest rates.
So, if we were experiencing the highest level of inflation in decades — like the US is now — interest rates typically increase, bank funding costs rise, liquidity tightens and the market pulls back.
But, like farming, these liquidity events are seasonal – around March and September — so we’ll likely have three months before significant pressure will be put on markets again.
Don’t have the Raiz App?
Download it for free in the App store or the Webapp below:
Important Information
If you have read all or any part of our email, website, or communication then you need to know that this is factual information and general advice only. This means it does not consider any person’s particular financial objectives, financial situation, or financial needs. If you are an investor, you should consult a licensed adviser before acting on any information to fully understand the benefits and risk associated with the product. This is your call but that is what you should do.
You may be surprised to learn that RAIZ Invest Australia Limited (ABN 26 604 402 815) (Raiz), an authorised representative AFSL 434776 prepared this information.
We are not allowed, and have not prepared this information to offer financial product advice or a recommendation in relation to any investments or securities. If we did give you personal advice, which we did not, then the use of the Raiz App would be a lot more expensive than the current pricing – sorry but true. You therefore should not rely on this information to make investment decisions, because it was not about you for once, and unfortunately, we cannot advise you on who or what you can rely on – again sorry.
A Product Disclosure Statement (PDS) for Raiz Invest and/or Raiz Invest Super is available on the Raiz Invest website and App. A person must read and consider the PDS before deciding whether, or not, to acquire and/or continue to hold interests in the financial product. We know and ASIC research shows that you probably won’t, but we want you to, and we encourage you to read the PDS so you know exactly what the product does, its risks and costs. If you don’t read the PDS, it’s a bit like flying blind. Probably not a good idea.
The risks and fees for investing are fully set out in the PDS and include the risks that would ordinarily apply to investing. You should note, as illustrated by the global financial crisis of 2008, that sometimes not even professionals in the financial services sector understand the ordinary risks of investing – because by their nature many risks are unknown – but you still need to give it a go and try to understand the risks set out in the PDS.
Any returns shown or implied are not forecasts and are not reliable guides or predictors of future performance. Those of you who cannot afford financial advice may be considering ignoring this statement, but please don’t, it is so true.
Under no circumstance is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz Invest or Raiz Invest Super.
This information may be based on assumptions or market conditions which change without notice and have not been independently verified. Basically, this says nothing stays the same for long in financial markets (or even in life for that matter) and we are sorry. We try, but we can’t promise that the information is accurate, or stays accurate.
Any opinions or information expressed are subject to change without notice; that’s just the way we roll.
The bundll and superbundll products are provided by FlexiCards Australia Pty Ltd ABN 31 099 651 877 Australian credit licence number 247415. Bundll, snooze and superbundll are trademarks of Flexirent Capital Pty Ltd, a subsidiary of FlexiGroup Limited. Lots of names, which basically you aren’t allowed to reproduce without their permission and we need to include here.
Mastercard is a registered trademark and the circles design is a trademark of Mastercard International Incorporated.
Home loans are subject to approval from the lending institution and Raiz Home Ownership makes no warranties as to the success of an application until all relevant information has been provided.
Raiz Home Ownership Pty Ltd (ABN 14 645 876 937), an Australian Credit Representative number 528594 under Australian Credit Licence number 387025. Raiz Home Ownership Pty Ltd is 100% owned by Raiz Invest Australia Limited (ABN 26 604 402 815).
