Bond valuations are cheap.
Psychology in markets is always fascinating. In February 2009, I wrote “8 Reasons For A Bull Market.” While in hindsight, it is easy to see that was the right call, overall, psychology was highly negative at the time. The arguments for lower stock prices and a continued economic recession were rampant. Most importantly, investor psychology was extremely bearish, and stock valuations were dramatically cheaper. It is the opposite today, with investors shunning cheap bond valuations in favor of overvalued equities.
Another example was in 2021. Following the crash in oil prices and the ESG movement, we made the case for owning energy stocks as investors shunned energy companies.
They were the best-performing asset class in 2023.
Again, in November 2022, we wrote an article discussing the perceived “Death of FANG Stocks.” The reason was the extreme pessimism in the sector during the market correction. To wit:
“As investors seek out investments with sustainable earnings growth rates in a slowing economic environment, many FANG stocks will garner their attention. Combine that focus with the inflows from passive investors when the market cycle turns, ongoing share buybacks, and the liquidity needs of major investors; likely, FANG stocks will still find some favor.”
Unsurprisingly, 2023 has been the year of the “Mega-7” stocks driving the overall market returns.