The markets have rallied strongly since the Brexit vote was finalized, a move that was counterintuitive to most investors. In reality, markets typically rally when investors do not expect it and bear markets appear when everyone is apathetic. So, it wasn’t surprising to see the markets rally in the face of this year’s volatility.
There are a couple things we feel are driving this rally:
The markets look a bit tired in the short-term, as they have rallied strongly over the past couple months. We wouldn’t be surprised to see investors take a short-term break. However, we feel that any pullback in this time frame would lead to higher prices down the road. We are currently analyzing markets and sectors to discern where we might deploy more capital.
There’s an old saying on Wall Street, “When things look their worst, it’s probably time for the markets to rally”. Well, that old adage is ringing true today. In the last six weeks, we saw the markets knee-jerk lowering on the news that Great Britain is leaving the European Union. Things looked gloomy at that point. However, since then the markets have rallied to new 52-week highs.
We see a couple reasons for the market’s recent rally:
In the end, we’ve been telling you for a while that we felt this two-year sideways market action would right itself to the upside. The positive side of a sideways market is that it digests earnings and valuations and allows investors to rebalance. In the short-term, the markets are a bit overbought, so it may soften. But, we feel the longer-term markets are on good footing and we will use any softness to our favor.