Equity markets are often referred to as weighing machine since a famous investor from Omaha, Nebraska coined the phrase almost 50-years ago way back during the awful bear market of 1973-74. In our opinion the current market uncertainty and sector rotation is being caused by investors continually re-evaluating whether the strong post COVID economic recovery is going to be enough to offset the looming headwind of rising interest rates plus the increasing political inconsistencies from China to add some spice to the mix.
- “In the short-run, the market is a voting machine, but in the long-run, the market is a weighting machine” – Warren Buffet
Last week stocks enjoyed a strong recovery with the Dow surging over 1200-points from its Wednesday low as investors embraced the view that ongoing economic strength is set to prevail into 2022 which will continue to fuel the equities bull market at the current stage of the cycle:
- Economic bellwethers copper and oil enjoyed impressive gains through the week with the industrial metal surging over 10% while crude oil hit 7-year highs.
- Australian 3-year & US 2-year bond yields reached 18-month highs implying strongly that rate hikes are just around the corner for both countries.
In other words most markets / indictors are pointing to ongoing strong economic growth and higher interest rates and critically the broad stock market is comfortable with this scenario although it is causing noticeable performance disparity between differing sectors.
MM remains bullish equities targeting fresh highs
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