- For all intents and purposes, stocks should have tanked by now, but bears keep getting blindsided by investors buying the dip and that may be because there just aren’t that many alternatives.
- Inflation and tighter monetary policy are seeing a run away from bonds, while price pressures are eating away at bank deposits as mortgage rates rise making real estate less attractive.
No matter where you look in the markets these days seems like there’s something new to worry about.
Russian atrocities against Ukraine’s civilian population are coming to light, solidifying resolve by hitherto fence-sitting Europeans to impose even harsher sanctions on Moscow.
Meanwhile, a yield-curve inversion suggests investors are more pessimistic on the long-term outlook of the economy while central banks are looking to put the kibosh on an era of loose monetary policy.
For all intents and purposes, stocks should have tanked by now, but bears keep getting blindsided by investors buying the dip and that may be because there just aren’t that many alternatives.
Historically, periods of high inflation have still seen stocks outperform every other asset, and with cash and bonds offering negative real yields, investors are still inclined to buy the dips in global equities, even as margins get compressed from higher commodity costs.
And the rebound in equities in March backs this view.
To be sure, global stocks are nursing losses from the worst quarter since the start of the pandemic, but March, which has typically been weak for equities, saw a rebound.
Some of the rebound no doubt can be attributed to the massive losses in a standard portfolio’s other asset class – bonds.
Inflation and tighter monetary policy are seeing a run away from bonds, while price pressures are eating away at bank deposits as mortgage rates rise making real estate less attractive.
In other words, where else is the money going to go?
Stocks just look “less bad” against a backdrop of poor choices.
