Cutting through the Noise: Is the market headed back to 2021?

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Many investors are scratching their heads and wondering about the continued rise of stock prices, a run that started in the fall of 2022. Is it real or are things getting carried away?

During a cross-Canada tour last month, we addressed this question. Our chief investment officer, Salman Ahmed, told clients that things are normal, more normal than they’ve been in many years. He provided a checklist.is expected to keep growing, as are corporate profits. Check. Stock valuations have risen in recent months but are still within their historical range. Check. Fixed-income securities offer yields that are in excess of. Check. People are worried about politics and the next recession.

Fortunately, or unfortunately, depending on your perspective, rising interest rates wrecked the party and caused a nasty hangover in 2022. I like to think of it as a much-needed period of normalization. Some of these strategies have investment merit but, as in 2021, what’s noteworthy is how many high-risk, high-volatility, high-valuation things are raging at the same time.

So, is excessive speculative behaviour something to be concerned about? The answer is yes. It rarely produces lasting returns and often leads to disappointment. It can also reflect more broadly a complacency in the market toward risk and unrealistic expectations.

 

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