The majority of investors refuse to believe that the markets have managed to move sharply upwards, after the shock of the first quarter of 2020 and are trying to portray the market. However, this is disastrous as the negative market predisposition also creates a negative bias for any stock positionings.
The concern that the market is a "bubble" and will collapse is a constant concern of investors and pushes them to stay out of markets. In fact, this concern is more and more intense in the early stages of an upward market, in which investment positionings are the safest.
Pessimism in the stock market is the worst possible sentiment. An investor, who is optimistic and is constantly invested in the markets has achieved incredible returns over the last 30 years. Of course, returns would come with the corresponding fluctuations, but any investment is a marathon and the one who wins, is not the one with the greatest endurance, but the one that best manages his powers. So psychology is one of the most important parameters and every investor must constantly protect it so that it is not falsely affected.
After all, according to a Bank of America study, from 1928 until today, a market that has lost more than 20% of its all-time high, needs an average of 4 years to recover. And this only if a portfolio is only comprised by stocks and no other investment tools. Thus, it is obvious that an investor has a strong chance of achieving significant long-term returns on his investments.
Volatility that exists in the markets, we could say that it is the somewhat expensive "ticket" the investor pays to have access to the generous long-term reward offered by stocks.
At the beginning of 2021 we also observe that the concern for rising inflation strikes back. A concern caused by the rise in US bond yields and especially by the rise in oil and copper.
Copper is 25% higher than March’s highs and oil still needs five dollars to reach the level it was in March before global economy stalled. Given that the economic growth was rapid in the second half of 2020, it is natural that the prices of these two valuable commodities rose sharply as companies in the opening of the economy placed huge orders to buy both of these commodities.
On the other side interest rates have been a victim of the times.
1. The pending approval of the new support package leads to an increase in interest rates as the market tries to adjust the new data, before new US bonds issues.
2. Investors are liquidating their positions in bonds and place their money in stocks in a pursuit of better returns while estimating that support form Fed and the government will continue.
3. Rumors of inflation and tapering are boosting returns. However, given the circumstances, it would be completely ineffective for Fed on the one hand to cater for more liquidity in the economy and on the other hand to undermine this strategy by thinking of raising interest rates.
Fed has a verbal tool called 'forward guidance'. As long as investors have confidence in Fed and as long as Fed does what it says, markets will continue to move within the familiar pattern.