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They also warmed back up to technology and other momentum-driven stocks, having pulled money out of these equities in droves during March and early April. It also didn’t hurt to have the European Central Bank announce that it would be providing additional liquidity to struggling markets in that part of the world. That said, for most of our Ultimate Stock-Pickers there remains an undercurrent of concern about where the markets are headed from here.
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We were also intrigued by the commentary put forth by Steve Romick at FPA Crescent Fund (MUTF:FPACX) about the impact that quantitative easing worldwide has had on riskier assets:
Disappointing economic growth offers a silver lining, in that it discourages central banks from becoming less accommodative, despite jawboning to the contrary. The Federal Reserve continues to keep interest rates low and to quantitatively ease albeit with some negligible tapering. This effort clearly hasn’t had much of an economic impact but it has continued to elevate the price level of risk assets around the globe…With yields remaining artificially low, we observe zero interest-rate policy perverting capital allocation decisions. Money continues to flow around the globe in a quest for yield, instigating a continued rise in risk assets. Many who have been accustomed to the lower risk of high-grade bonds and Treasuries are now finding themselves looking elsewhere. There is no better example of this than the first six months of this year when global stock markets, high-yield bonds, gold, oil and long-dated Treasury bonds all saw their value increase in chorus, a real rarity. As yields have declined, the expectations and spending needs of investors appear to have remained constant, leading them to assume additional risk in varied asset classes around the world. Whereas many past bull-market rallies have been greed-based, this one seems more need-based.
