With stock markets around the world continuing to hit all-time highs and financial markets around the world exhibiting strength across most indices (particularly in the U.S.), positive global sentiment has continued, supporting a continued global economic rebound.
With monetary policy remaining relatively accommodative and the recent recession seemingly in the rear view mirror of most investors, said positive sentiment has continued to drive equity markets higher at a time when some are suggesting a brief pause may be in order.
Valuation expansion has made up the vast majority of the broad increase in equity values in recent years, indicating to some economists that we may now be entering an era of increased systematic risk in the broader stock market.
This increase in systematic risk may be fueled by the rise of exchange traded funds (ETFs) and other engineered products aimed at increasing investment streams into equities has been very successful at achieving its mandated goal – perhaps too successful.
Without ruling out a protracted final leg of this most recent bull market, a scenario which remains a likelihood given the lack of negative catalysts on the horizon threatening to derail the bull rally, it remains equally likely in my mind that markets will begin to take a breather over the next few years as markets pause in anticipation of corporate earnings to increase to match the recent growth of valuation multiples globally.
As the VIX continues to show, investors have become increasingly complacent in recent years. My advice – remain vigilant.
Invest wisely, my friends.
