The Risk-Reward In Expecting Another 20 Percent Rise in Markets
• The S&P 500 closed at a record high Thursday - extending a six-year 215 percent rally from March 2009
• Much of the speculative rank is turning to 'tactical' trading, but there is still plenty of buy-and-hold
• What is the 'risk-reward' scenario for US equities (and risk in general) to rise another 20%?
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For those that have participated in the incredible rally in US equities and other one-way capital market benchmarks these past years, it is easy to find comfort in complacency. However, what if you had to decide whether to enter the market today after the S&P 500 set a fresh record high with a longer holding period? Most would scoff at the notion. The perspective is certainly different but the potential for the market ultimately is not. The probability of another 20 percent advance from the benchmark US index within a similar pace to what we have seen over previous years without a meaningful correction is very low. We continue to see conditions deteriorate behind the further reach with diminished participation, shorter investment time frames for new entrants, excessive leverage, a push into riskier assets and fading fundamentals. Investors should be wary and opportunistic speculators on alert. We revisit the risk-reward evaluation of the global capital markets and sentiment in today's Strategy Video.
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