Does a reopening economy mean stocks will shine?
Notwithstanding the continued calamity of the pandemic, investors can find reasons for optimism. Many companies are reporting better than expected revenues and earnings, while households sit on large amounts of cash and pent-up demand. All the while the Fed promises to remain extremely accommodative.
On the other hand, stock valuations, as measured by earnings multiples, are at the highest end of historical ranges. And speculation abounds – note elevated levels of margin debt and recent activity in stocks like GameStop.
We are not calling a market top. However, we believe that most of the benefits that will accompany a fully reopened economy are already reflected in current stock prices. And beyond stocks, it may be difficult to find an asset class described as undervalued.
Three recommendations for investors
As shown, it is common for even shrewd investors to accurately predict the result of an event, but totally miss on the longer-term investment outcome. With this in mind, we offer the following practical advice to investors: