Investor Confidence Rallies as Stock Market Continues to Surge
Investors are feeling confident as the stock market continues to rally, buoyed by strong economic data and a waning fear of inflation. This week's blockbuster US jobs report helped bolster investors’ confidence in the strength of the American economy, driving the S&P 500 up 9% since the start of the year and the tech-heavy Nasdaq Composite up 16%. The VIX index has been below its long-term average of 20 for two weeks, indicating that investors have a low fear of volatility.
Asset markets that were among the most beaten-up in last year’s sell-off, such as Bitcoin and Cathy Wood’s ARK Innovation fund, have been the best performers. Analysts and investors at large banks and asset managers have repeatedly argued that markets have been too optimistic, but stocks have so far largely shrugged off weak fourth quarter corporate results. Meanwhile, the International Monetary Fund this week raised its forecasts and said the world was “well away from any (sign of) global recession.”
The Federal Reserve has been aggressively raising interest rates over the past year in order to cool the economy and curb inflation, and investors now appear hopeful that moderating inflation could mean an end to the rate hikes is on the horizon. Fed Chair Jerome Powell said Tuesday that more rate hikes are needed amid the strong labor market, but he also appeared relaxed about the recent gains, noting that “our focus is not on short-term moves” and declaring for the first time that “the disinflationary process has started.”
Mike Lewis, head of US equity cash trading at Barclays, suggested that economic data would be more important than Fed commentary in changing investors’ minds about the outlook for interest rates, but that could take several months. He warned that if the labour market doesn't loosen up as we go into summer, it could cause a risk hiccup. Though a difficult second half may be on the horizon, that is still far off in the future.
It remains to be seen how the economy and markets will develop in the coming months. But for now, investors appear to be feeling confident, with many buying up assets that were heavily discounted during last year’s sell-off and shrugging off weak fourth quarter corporate results.
0. “FOMO fuels market rally as investors assess risks of a recession are receding” Financial Post, 6 Feb. 2023, https://financialpost.com/investing/fomo-fuels-market-rally-investors-recession
1. “The Stock Market Is Rallying. Will It Last?” msnNOW, 8 Feb. 2023, https://www.msn.com/en-us/money/markets/the-stock-market-is-rallying-will-it-last/ar-AA17fyqW
2. “The Stock Market Is Off To A Great Start In 2023 — Here's How The Federal Reserve, Interest Rates May Cha” Benzinga, 9 Feb. 2023, https://www.benzinga.com/analyst-ratings/analyst-color/23/02/30821783/the-stock-market-is-off-to-a-great-start-in-2023-heres-how-the-federal-reserve-inte
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