OPINION: Risk/reward in U.S. stocks now is tilted to the upside. Here’s why.
What are the odds of a melt-up for U.S. stocks for rest of 2021? If history is any guide, stocks can be expected to bottom in early October and begin a period of seasonal strength into year-end.
Supportive sentiment The sentiment backdrop is becoming more supportive of an advance, though readings haven’t fallen to panic extremes. For example, the NAAIM Exposure Index, which measures the sentiment of registered investment advisers, plunged recently but didn’t break the 26-week Bollinger Band. A penetration of the low Bollinger Band has been a strong buy signal in the past.
The headlines may see rising hysteria over shortages in the coming weeks as Christmas nears and products aren’t available in plentiful supply. In reality, the shortages are attributable to a supply shock owing to rising demand in the face of limited manufacturing and transportation capacity. Central bankers raising interest rates won’t make the semiconductor shortage go away, nor will it expand shipping and trucking capacity.
Fiscal wild cards On the other hand, investors will have to deal with the confusing fiscal picture out of Washington. This time, there are simply a lot of balls in the air and many moving parts to fiscal policy. Each issue is separate but related and any one of them could go off the rails and affect fiscal policy and unsettle the markets.
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