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The way markets behave this year, it makes sense to consider high-quality US assets as a safe haven. But even wise moves can reach extremes and cause distortion.

The trick is trying to figure out when cleanup activities bring conditions to higher risk. It is unclear if we are still there.

That's right-although the outbreak of the coronavirus exceeded expectations for accelerated trade and manufacturing-led economic in early 2020, the fact is S & P 500 It's historically high and the way to get there is not illogical.

Government bond yields have rushed to lows last summer, investors' cash has poured into bond funds, the credit market is still loose, the US economy provides more stable growth, and US securities are committed to providing safer cash flows and returns.

In response to the huge uncertainty of China's economic performance, the United States outperformed the rest of the world. In the United States market, long-term and defensive stocks have propelled gains, and their valuations have continued to expand.

Winners and losers

In light of these developments, the year-to-date performance of the S & P 500 index stocks has not been as expected. Top: Utilities, Technology, Real Estate and Consumer Discretionary. Lagging behind the benchmarks are energy, finance [due to low yields] and industry.

Thematically, large companies considered to have the most reliable future and profitability are attracting more than their share of world capital.

When investors are buying bonds as aggressively as they are now, Bank of America says Last week set a record for fixed-income capital inflows-meaning they are trending towards "duration" or long-term cash flows. In a sense, large-cap stocks are also long-term assets, which are adjacent to bonds within the scope of assets.

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So we see Pioneer Super Capital Growth ETF With the global Dow Jones index. The latter is a stagnant list of multinational companies, and Nasdaq's glamour stock has taken MGK to the sky.

Tom Lee of FundStrata Global Advisors said US stocks represent a "safe trade trio." In other words, the in the United States is better; the S & P 500 is a growth / large-cap index; in the current context, the market value of the S & P 500 is scarce in the world of $ 300 trillion household liquid assets.

It has become commonplace to argue that contradictory messages from the stock and bond markets, with 10-year US Treasury yields falling below 1.6%, and the S & P 500 Index setting a new record. However, ten-year US Treasuries have remained flat over the past ten years, during which the S & P 500 index has risen by about 80%. In recent years, the yield on 10-year Treasury bonds has been much higher than 2.5%, and there has been little net progress in the stock market.

Both stocks and bonds seem to be saying that this is a low-growth, tame-inflation, high-liquidity environment, unless proven otherwise.

The actual investment-grade bond yield is hardly higher than zero. The Chicago Fed's National Financial Status Index shows that the liquidity background is as loose as this cycle, in line with the most accommodative figures in late 2017 and mid-2019.

Obviously, most dividend yields on the S & P 500 index stocks exceed 10-year US Treasury yields. Although there is no perfect indicator of relative value, this often provides a buffer for stock valuations.

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In absolute terms, these valuations have begun to become stretched. Now, the forward price-earnings ratio of the S & P 500 index exceeds 19, the highest point of this bull market, and the expected rebound in profit will continue to be pushed into the future by the global industrial slowdown.

Too many investors are now hiding in this large Vanguard stock basket with a price-to-earnings ratio of 30, and there is less and less margin for error.

This year, a group of stocks that may be called "special speculative " has also been active, suggesting that investors are actively grasping for the next big thing [or maybe the next rapid plunge]. you know Tesla, An increase of 91% in the six weeks of 2020. Beyond meat, An increase of 52%, Virgin Galactic, 134% ahead, and Shopify, An increase of 35%.

Along the front lines of investor sentiment, Friday's University of Michigan Consumer Confidence Survey, The percentage of respondents who said the stock market would rise within a year reached the second highest level since 2002, surpassing that level just before the peak in early 2018. Soon after, stocks were severely restricted.

Bank of America global strategist Michael Hartnett has been rightly calling for strong growth in risky assets by early 2020, and he continues to suggest that this trend be maintained until investors become more "ecstatic" So far, he expects this will mark the "peak" moment. Positioning and highest mobility. "

More specifically, he said, this happens when the S & P 500 has a price-earnings ratio of more than 20 times and the appreciation of bonds and the dollar has become "disorganized."

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The general idea is: respect the market's information, but also respect the trend of market madness. Reasonable advice. If it is easy to tell when the extremes have been reached.