The first month of 2021 finds investors quite restrained and this is mainly due to the inability of the US government to vote for a new package to support its economy. But we must not forget that investors are certain that this will happen, while in the coming days Donald Trump will hand over the White House to Joe Biden and another political thriller will come to an end. When this happens, it is extremely likely that we will see investors return dynamically to the markets.
Ιt is very important to remember that the entire stock market rally that started in March 2020, has taken place with the volatility index being over 20. This means that there is a stock market rally that takes place in an environment of constant uncertainty and these conditions have not triggered investor confidence. If VIX index manages to break below 20 again, then this will be another indication that stocks could climb to significantly higher levels.
Reinforcement of the upward trend of the markets
Markets are amid an upward trend and this is not a personal assessment but an objective observation that derives from the diagrammatic observation of the entire stock market. The above finding does not mean that the markets are constantly rising, but any corrective move is a normal process in a market that tries to move upwards in the long run, without extreme overperformance.
The chart below shows that all three US indices are at historic highs and in fact in a strong upward trend which has not even once been disturbed since March 2020.
We can witness the same outlook in emerging markets that no one can claim to be over-valued as for a decade they have not achieved any remarkable performance and many of them, such as Japan, just broke its previous high which was recorded 30 years ago.
We have the same indications from other indices too that reflect the general willingness to take risks, such as the ratio of stocks to gold (SPX/ Gold) and the Australian dollar to Japanese yen (AUD/ JPY).
So there is no doubt about the current trend of the markets. The above trend shows that the right investment position should be inside the markets and not outside them.
At this point it is good to make a reminder: investors only gain from the markets when they are inside and not when they are outside. An investor instead of worrying about whether he should be in the markets or out, whether the stocks are expensive or not, whether the conditions will continue to be favorable or not, he should create a portfolio that will perform extremely well when the markets will move upwards and will protect him to the maximum when the markets are in a difficult circumstance.