The previous days have ravelled global stock indices appearing as if they have found a reasonable value as they merge after several volatile trading sessions. However, there other peculiar and hefty concerns plaguing the investors’ minds. One of which are concerns over who will be in control of the proceedings within the market – will it be the bears or the bulls? Will there be any further correction to go? Or is this simply the beginning of an even larger scheme of things.

To be able to effectively predict what might happen in the future, you need to examine the events that transpired in the past. We all know very well that the recent equity and bond market rally was fuelled by an exceptional monetary stimulus that came from central banks. With all the interest in the possibility by the US Federal Reserve, it really didn’t come much of a surprise to see both equity and bond markets to cascade down. Even with the most respectful of bulls will encourage you that stock prices will go a bit higher in a heartbeat.

There is still a great deal of bullishness present in the market and a lot of investors have been patiently waiting for a perfect entry to go along with the trend. The latest recovery sessions have indicated that the long – term prospects for stocks still look very promising.

There is some interesting debate regarding the equity market rally to push on is the possibility of there being an end to the “commodity super-cycle”. Years of weakening dollar have resulted a commodity expansion. In the meantime, with so many talks or adjustments and tapering, investors are beginning to see the possibility of interest rate hikes from the FR to allow the US dollar to recover at the expense of commodities.

If the dollar’s continued recovery persists, the outlook for higher commodity prices consequently won’t look good, which should be the effects of a broader economy. Lower commodity prices will certainly be welcome from those hoping against all odds that high inflation will back down, especially following this week’s surprise lead in the UK consumer market price index inflation to 2.7 % and the shift in the retail price index to 3.1 %.

It is this broader optimism regarding the outlook for corporate profits, as economies harvest the rewards from an overdue monetary stimulus, supporting the view that stock markets could somehow continue higher in the following months ahead.

However, there are still a lot of those who believe that there will be more commotions to come and that the western economies won’t be able to cope once they are weaned off the monetary life support. Economic statistics hardly have any upsides especially when you see the bigger picture.

When the eventual rise in central bank base rates will not push through, it could choke the growth especially if the rate rises are abrupt. Despite a considerable reduction in debt by both parties, there is still a staggering challenge that will hurt when the rate hikes will come too soon. This event might be in some way off in the meantime, but the prospect in itself is adequate to send investors seeking shelter.

Last Updated: January 27th, 2021