Sentiment is a key factor which affects asset prices in general. The optimism or pessimism individual investors have directly correlates to the stock market and the prices one is willing to pay for stocks, assets which are valued based on expected cash flows over a long period of time. In this context, it looks like some economists are more optimistic than investors right now, a reality which might not seem like the case, given where stock prices are right now.
Increasing cash hoards by Canadians, low interest rates, and the end of the coronavirus pandemic are all factors being assessed by economists as reasons why the Canadian economy could rebound even more sharply than what is being priced in by the stock market right now. While that is hard to believe, it is important to remember that as long as central banks remain accommodative, cheap money really doesn’t have anywhere else to go other than equities right now, with the “TINA” (there is no alternative) trade driving a lot of momentum in markets right now.
It is important for all investors with any sort of reasonable investment time horizon to remember that low interest rates, and in particular interest rates that stay near zero for an extended period of time, can only be bullish for assets. The yields earned from any asset become more valuable as fixed income yields remain so low, so staying out of the market right now could turn out to be a big mistake.
Invest wisely, my friends.
