{"id":9769,"date":"2021-08-09T13:19:22","date_gmt":"2021-08-09T13:19:22","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9769"},"modified":"2022-02-26T13:05:37","modified_gmt":"2022-02-26T13:05:37","slug":"will-record-setting-investment-in-u-s-markets-trigger-volatility","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/will-record-setting-investment-in-u-s-markets-trigger-volatility\/","title":{"rendered":"Will Record-Setting Investment in U.S. Markets Trigger Volatility?"},"content":{"rendered":"\n<p>In the first half of 2021, investors across the globe poured\nover $900 billion into U.S.-based mutual funds and exchange-traded funds (ETFs).\nIt was a record-setting start for fund flows in the first six months, and the\nU.S. was by far the biggest beneficiary. In a world still beset by the pandemic\nand uneven responses and recoveries, the U.S. has been a refuge of sorts for\nglobal investors. Foreign investors alone added $712 billion into U.S. equities\nin 2020 and are expected to add another $200 billion this year.<sup>1<\/sup><\/p>\n\n\n\n<p>Similar trends are playing out in the bond markets.\nAccording to Bloomberg data, close to $16 trillion of global debt had a\nnegative yield as of the end of July, which means investors would have to pay\nmoney to hold the bonds (assuming they held to maturity). At the end of 2019,\nthere was $11 trillion in negative-yielding debt, which underscores how global\ncentral banks pushed rates lower in response to the pandemic. <\/p>\n\n\n\n<p>The picture in the United States looks different. U.S.\nTreasury bond yields are positive, and we expect them to move higher over time\nas the Federal Reserve eventually pulls back QE and as the economy continues to\ngrow. When global investors are looking for positive yielding, safe debt, the\nU.S. is the place to go \u2013 approximately 70% of positive-yielding bonds from G10\ncountries were U.S. Treasuries.<sup>2<\/sup><\/p>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_08_09&amp;content=stock_market_outlook_report   \">Economic Indicators You Should Keep an Eye On!<\/a><\/strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_08_09&amp;content=stock_market_outlook_report   \"><br><\/a> <br>In addition to the yield curve, there are other key economic indicators that may be able to help you navigate the market! To help you keep an eye on these economic data releases, earnings reports, and other key economic factors, we are offering all readers a look into our<strong> <a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_08_09&amp;content=stock_market_outlook_report   \">just-released\u00a0August 2021 Stock Market Outlook report.<\/a><\/strong><br> \u00a0<br>This report will provide you with our forecasts along with additional factors to consider:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks\nrank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks\nview on equity markets<\/em><\/li><li><em>What\nproduces 2021 optimism?<\/em><\/li><li><em>An\nupdate on the outlook for Covid-19<\/em><\/li><li><em>Top\nstocks in top industries<\/em><\/li><li><em>Sell-side\nand buy-side consensus<\/em><\/li><li><em>And\nmuch more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <strong><br>IT\u2019S FREE.\u00a0<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_08_09&amp;content=stock_market_outlook_report   \">Download the Just-Released August 2021 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_08_09&amp;content=stock_market_outlook_report   \">3<\/a><\/sup><\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p>In my view, it makes sense why the U.S. is attractive to\nglobal investors at the current moment. The U.S. has plenty of vaccines,\nlittle-to-no economic restrictions related to the pandemic (at least not\ncurrently), and a booming economy with strong spending and growth. Many\ncountries are still struggling to get the pandemic under control, which also\nmeans economic outlooks abroad are mixed. <\/p>\n\n\n\n<p>The abundance of capital within our borders and coming from abroad\nare welcome for U.S. markets and investors. The S&amp;P 500 has not pulled back\n-5% since October 2020, over which time it is up over +35%. To find the last\ntime the S&amp;P 500 went so long without a healthy pullback, we\u2019d have to look\nback to the stretch of June 2016 to February 2018. Zooming out even further,\ninvestors would find that in the last 50 years, the S&amp;P 500 has gone a year\nwithout a 5% pullback only three times: twice in the \u201890s and 2017. In my view,\n2021 will not be the fourth.<\/p>\n\n\n\n<p>Every investor likes to see the stock market trend nicely\nhigher, but I also think it\u2019s fair to observe some of the risks of unfettered\nstrength. To be clear, when I say \u2018risks\u2019 I do not mean the stock market entering\na volatile patch in the second half of the year or experiencing a correction of\n-10% or more. Just the opposite in fact \u2013 I think downside volatility would be a\nhealthy, normal outcome. <\/p>\n\n\n\n<p>My concern with unfettered strength revolves more around <em>investor complacency<\/em>, which I see as investors\ngetting too comfortable with a rising market and positive returns. The \u2018good\ntimes\u2019 often cause investors to ignore risk and invest too aggressively, while\nalso forgetting that pullbacks are normal and natural. Combined, these mindsets\nincrease the risk of making knee-jerk decisions when the stock market does\neventually turn volatile. Complacent investors may see downside volatility as\nmore worrisome than it actually is, which could lead to decision-making that runs\ncounter to an investor\u2019s long-term goals <em>and\n<\/em>adversely impacts returns. &nbsp;&nbsp;<\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p>The U.S. economic recovery is indeed strong, and it is only\na year old. There is also broad consensus that the U.S. will lead throughout\n2021, with an estimated GDP growth rate of 6.9%. This is higher than Europe,\nJapan, the UK, and most other advanced and emerging economies. It makes sense that\ncapital is flowing here, and the outcome has been good for U.S. markets and\ninvestors. <\/p>\n\n\n\n<p>I\u2019m not saying that what goes up must come down. But as a\nstudent of market history, I can say that I strongly believe the recent, steady\ngains will eventually give way to more downside volatility. It would be a\nnormal and natural outcome, and investors shouldn\u2019t fear it if and when it does\narrive. <\/p>\n\n\n\n<p>As of the end of July, the S&amp;P 500 traded at 21.6x\nforward earnings, which is well above its five-year average of 18.4x. Given\ninterest rates remain historically low, I\u2019m comfortable with the higher\nvaluation and remain optimistic about stocks in 2021 \u2013 but I also think it\u2019s\nfair to expect greater volatility when the market trades at relatively high\nlevels.&nbsp; <\/p>\n\n\n\n<p>In the meantime, I recommend keeping an eye on key economic data releases, earnings reports, and other key economic factors. Our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_08_09&amp;content=stock_market_outlook_report   \">Just-Released August 2021 Stock Market Outlook Report<\/a><\/strong>, will give you insight into all of it!<br> \u00a0<br>This report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks\nrank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks\nview on equity markets<\/em><\/li><li><em>What\nproduces 2021 optimism?<\/em><\/li><li><em>An\nupdate on the outlook for Covid-19<\/em><\/li><li><em>Top\nstocks in top industries<\/em><\/li><li><em>Sell-side\nand buy-side consensus<\/em><\/li><li><em>And\nmuch more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Capital flowing into U.S. equities may lead to volatility, but that is a normal part of a strong market<\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-9769","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9769","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9769"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9769\/revisions"}],"predecessor-version":[{"id":10339,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9769\/revisions\/10339"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9769"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9769"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9769"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}