The equities fairytale continues to play out as we see a robust performance across several sectors, with marked growth in the S&P 500, Nasdaq, and Russell 2000 indices over the past week, month, and quarter. Notably, the S&P 500 has advanced 9.13% over the past three months, underpinned by growth in sectors such as Technology and Consumer Discretionary, which have risen by 8.31% and 0.91%, respectively, in the same period. However, it's worth noting the VIX's sharp 7.96% decline over the past week, indicating a potential decrease in market volatility and investor anxiety.
Retail investors, energized by past experiences, have propelled the market, as suggested by a spike in equity purchases, albeit at lower trading volumes. Moreover, market sentiment seems cautious as traders await further guidance on interest rate movements from the Federal Reserve, which could inject volatility in the short term.
The mixed jobs data has prompted a sell-off in tech stocks, as observed with the Nasdaq's recent pullback, as seen in the 1 month performance, suggesting a reevaluation of risk appetite among investors. Despite the sell-off, the accumulation of bullish tech bets to a three-year high signals a market tilting towards optimism, but also raises concerns over a potential correction if these positions unwind rapidly.
The IPO market shows exuberance, with Reddit's recent public debut surging by 70%, indicating a strong appetite for new market entrants. Simultaneously, the backdrop of a potentially dovish Fed policy and Goldman Sachs' economist projecting a low likelihood of recession in the next year contributes to a positive investment climate.
In light of these factors, and considering the recent improvement in American productivity, investors may continue to see opportunity for growth in equities. However, they should also be mindful of the tax implications and the looming shadow of government debt, preparing for both higher taxes and inflation as potential eventualities.
“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” - Peter Lynch
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