A main reason behind last week’s volatility is fears that the Delta variant, which is driving a renewed surge in Covid-19 cases, will derail, or at least delay, the global economic recovery. Indeed, we are seeing the re-imposition of more stringent restrictions in parts of the world, particularly where the percentage of population vaccinated remains low.
Risks for stocks are elevated. Few would debate this. Valuations for Standard & Poor’s 500 stocks — according to data service provider FactSet, currently at 21.4 times forward earning — are higher than both the five- and 10-year averages of 18.1 and 16.2 times respectively.
Yet, US stocks have been inching inexorably higher this year — even though there is intermittent profit-taking — and leading global markets broadly higher. Case in point: The market saw another sharp selloff last Monday but recouped lost ground in the following days. All three major bellwether indices — the Dow Jones Industrial Average, S&P 500 index and Nasdaq Composite — remain not too far from all-time record-high levels.
