Markets

Green Fisher: “How stable is the new bull market?”

Market fluctuations are a natural part of stock market development. Sometimes the volatility is attributable to a specific event, and sometimes it occurs for no apparent reason. Market history shows that reacting impulsively to volatility tends to be a source of error.

Volatility raises doubts again

Market fluctuations are a natural part of stock market development. Sometimes the volatility is attributable to a specific event, sometimes it occurs for no apparent reason. Market history shows that reacting impulsively to volatility tends to be a source of error. This also applies to the most recent volatility, which in many places casts doubt on the stability of the upward trend in recent months.

Focus on technology values

The most critical eyes are on the technology sector. After a strong rally, the US Nasdaq 100 index corrected by around ten percent in a few trading days. From traditional reasons such as “profit-taking” to more complex causes such as “momentum through institutional bets on rising prices”, everything could be read in the media. So how should this correction be classified?

Corrections cannot always be explained

Unfortunately, short-term corrections cannot always be fully explained, even if it would give many investors a better feeling. With regard to the technology sector, it can certainly not be denied that this has been a “hot” topic for months and that some investors have lost the rationality of their investment strategy. However, a heated mood is not evidence of dangerous bubble formation. On the one hand, as part of its leadership role, the technology sector tends to go through intermediate phases with a strong underperformance; on the other hand, the comparison that is often made with the tech bubble a good 20 years ago is still inappropriate. Back then, the market was full of companies with no solid business plans or real opportunities for profit, driven only by the widespread euphoria of investors. Today, US tech companies have the healthiest balance sheets in the S&P 500, have strong profits, and have shown resilience to the pandemic. Investors shouldn’t get lost in researching the causes of short-term volatility, but should follow the market and look to the future. The technology sector is in an excellent position to continue to set positive accents in this bull market.

The world is not just technology

The technology sector is rightly in focus, but a market discussion should not take place exclusively for this area. It could easily be overlooked that this new bull market rally is very broad. While the “FAANG shares” and Tesla dominate the headlines, since March 23rd, 98.6 percent of the stocks contained in the S&P 500 have actually risen. Across all sectors, a strong upward trend can be seen overall, so the overall market is looking to the near future in which society and the economy have learned to live with the virus.

Conclusion

The new bull market has seen its first noticeable correction, and many more will follow – this is normal in the stock market. The fact that so many market watchers are using this opportunity to deny the bull market its stability is basically a positive sign. Classic bear markets creep up when the majority of investors ignore the warning signs of the markets and celebrate every slide in prices as an opportunity to buy – not when every correction is interpreted as a warning sign of a cycle change.

You can request the current capital market outlook from Grüner Fisher Investments free of charge at www.gruener-fisher.de.

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