A Week of “Risk On” Markets

Ed Mertiri |

The past week was one for the record books. The S&P 500 index reached new highs all five days last week, creating a 10 day streak of new highs. It places the index that much closer to breaking the all time “new high” annual record of 77 new close price highs in one calendar year. YTD the S&P 500 has closed to 64 record highs, meaning it needs 13 more “new highs” in the remaining 38 trading days of 2021.

While we don’t follow all the random market records but it does highlight the overwhelming positive sentiment in US markets. The S&P Small Cap 600 index set records with a sharp breakout of its trading range that has been in place for almost 8 months. Investors have largely shunned riskier small caps since mid-March, but this week the index even outpaced large caps.

The bond markets also made records, with many US Treasury yields dropping below recent lows from late September.

Almost all equities are confirming investors are willing to take on more risk, particularly US equity risk. While we might like to attribute the market behavior to the FOMC meeting, new COVID treatment drugs, or improved employment, investors were already on the “risk on” path before these data points came out. Investor sentiment has become increasingly positive since a robust Q3 earnings season started. Any additional positive news has fueled the sentiment further.

We remain cautiously optimistic for US markets but are always conscious of valuations and changes to momentum.