Investors are terrified … to miss the market rally

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By Paul R. La Monica, CNN Business

The Delta variant. Inflation. The Fed is reducing its stimulus. The disorder in Afghanistan. There are a lot of things investors can be nervous about these days.

It shouldn’t come as a big surprise that the CNN Corporate Fear and Greed Index, which measures seven indicators of investor sentiment, is showing signs of fear in the market. It was actually Extreme Fear territory on Friday.

Always, actions to stay near the peaks of all time. The S&P 500 rallied for the third day in a row Monday and is now up nearly 20% in 2021. What’s up?

Another powerful fear factor is the rise in stocks: the fear of missing this seemingly endless rally.

Corporate profits for the second quarter were extremely strong. While earnings growth is expected to slow down a bit in the second half of the year and into 2022, earnings increases are still expected to be fairly solid for the foreseeable future.

Investors also have no choice but to keep buying stocks because other assets just don’t look attractive.

Bond yields have risen slightly lately, but the 10-year US Treasury yield is still hovering around 1.27%. They were around 1.8% in early 2020 before the pandemic put the U.S. economy back on track, so conservative investors should look elsewhere for higher returns.

“There are ridiculously low yields on bonds. How do retirees and pension funds deal with this? Eric Diton, chairman and CEO of The Wealth Alliance said in an interview with CNN Business. “They have to take action. I prefer to own big dividend payers like Pfizer from Verizon.

Pfizer pays a dividend that pays 3.2% while Verizon’s dividend pays 4.5%.

Gold price fell in 2021, with investors betting that the Fed will start scaling back its asset purchase plan later this year or early next year and possibly raise rates as early as the end of 2022.

The Fed shouldn’t disrupt markets so much anytime soon

But there is no guarantee that the Fed will hastily change its policy.

Questions about whether Washington will come with more stimulus and concerns about how quickly Congress will act to raise the debt ceiling that allows the government to borrow more money could keep the Fed at bay. gap even longer, which should also support equities.

“The Fed would rather know the direction of fiscal policy before committing to a direction of monetary policy,” David Kelly, chief global strategist at JPMorgan Funds, said in a report Monday.

“The longer the negotiations go on, the greater the risk of something going wrong in the political calculation and the Fed would rather get past that uncertainty before it starts to tighten,” Kelly added.

The Principal Global Investors research team says the Fed will likely remain on hold until early next year as well.

“Investors should not expect the Federal Reserve to change their plans to start easing policy, and we reiterate the view that the Fed will likely start shrinking early in 2022,” analysts wrote from Principal in a Monday report.

They added that “investors should not worry that soaring inflation could derail the positive trajectory” for riskier assets like tech stocks and other high growth sectors.

Delta variant likely won’t cause the 2020 shutdown to repeat

Several strategists are also not very concerned that the Delta variant has a major impact on the economy or income. With millions of Americans vaccinated, the chances of companies imposing strict shutdowns like they did in the spring of 2020 appear slim.

“Expect a moderation but not a halt in the recovery as government and consumers adjust to the rise of the Delta variant,” Glenmed strategists Jason Pride and Michael Reynolds said in a report Monday morning. .

Business leaders also remain bullish, which bodes well for stocks.

According to a survey conducted by investment firm Stifel on Monday of business executives, business owners and private investors, many companies are still planning to raise funds for mergers and other strategic initiatives in a foreseeable future.

“There is a general sense of optimism after a long period of Covid-induced disruption,” Michael Kollender, CEO of Stifel, said in the report. But he added that businesses must adapt to a rapidly changing economy, with labor shortages and tax reform as two key challenges.

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