Many economists, analysts, and market participants believe that equities today are trading where they should be given certain macroeconomic factors, and I do think this is partly true. A zero-interest-rate environment has spurred a “there is no alternative” (TINA) trade among many investors who simply cannot get a reasonable return from fixed income assets in this environment and have no choice but to go to equities for a reasonable return.
That said, on a number of fundamental metrics, stocks are now trading at levels we haven’t seen since the Great Depression. As various indices make new highs, one has to wonder about what the potential downside would look like should inflation really take hold or interest rates are forced to rise. A global accumulation of debt that was once unfathomable requires long-term near-zero interest rates to remain sustainable. The question is: will this be possible long-term?
Everything in the long-term is uncertain in the near-term. Staying invested in high-quality stocks that are durable, provide a reasonable payback, and are consistent with one’s risk tolerance level and long-term objectives is advisable. I would highly recommend investors stay patient, look for buying opportunities, and have some cash and/or hedges built into one’s portfolio at all times. Doing so helps smooth out long-term returns and provides the peace of mind many investors (such as myself) require to sleep well at night.
Invest wisely, my friends.
