Persistent Advance in Stocks and Commodities Shows Investor Confidence

The S&P 500 hit a high last week, buoyed by gains in technology stalwarts like

Microsoft Corp.

as well as consumer-focused stocks such as

Chipotle Mexican Grill Inc.

The persistent climb underscores how the broadest measures of market performance remain remarkably strong, masking volatility under the surface. Even as traders cope with mammoth swings in everything from

Tesla Inc.

to the price of lumber and concerns about the longer-term economic outlook, many investors remain confident that an expanding economy and rising corporate profits will support further gains. 

And with returns from relatively safe assets such as bonds still limited due to ultralow interest rates—or even negative when factoring in inflation—traders keep favoring high-performing investments. 

“There’s nowhere else to go in our view,” said Jeff Garden, chief investment officer at Lido Advisors. “You’re not going to be able to find what you’re looking for in the safer investment spaces.” The firm holds a larger position in trades it deems risky, including stocks and commodities, than the benchmarks it tracks. It also is protecting against pullbacks using options, which allow the holder to buy or sell an asset at a specific price in the future. 

Although frenetic trading in individual stocks and sectors has jolted investors throughout the year, the S&P 500 hasn’t dropped 5% or more from a record in nearly eight months, the longest stretch since February 2018, per Dow Jones Market Data. The Cboe Volatility Index, which measures expected swings in the broad stock index and is also known as Wall Street’s “fear gauge,” recently hit its lowest level since February 2020. 

Markets remain calm even though traders are rapidly shifting their expectations for the economy and which sectors will outperform. For much of 2021, bets that the Fed would be slow to pare back its easy-money policies and let consumer prices rise pushed up government-bond yields and sectors directly linked to the economy, such as shares of banks and manufacturers. After the central bank signaled earlier this month that it might raise interest rates sooner than expected, investors unwound some of those wagers.

In June, splashy bets such as Tesla and tech companies have rebounded, leading stocks higher as they have for much of the coronavirus pandemic. Some traders now anticipate the Fed to limit the economy’s acceleration over time. A slower-growing economy makes the reliable revenue growth of tech-focused companies more attractive, investors say. 

Last week, Microsoft hit a market value of $2 trillion, becoming the second U.S. public company after

Apple Inc.

to achieve the milestone and punctuating a nearly uninterrupted rise for major indexes since April 2020.

“It’s really been such a good market,” said Leslie Thompson, managing member at Spectrum Management Group. “When we see divergence in certain sectors, other sectors are picking up.” She is favoring large technology companies such as Microsoft and Google parent

Alphabet Inc.

, as well as companies more tied to consumer activity such as

Home Depot Inc.

Investors are pouring tens of billions of dollars each week on average into global stock exchange-traded and mutual funds,

Bank of America

figures from data provider EPFR Global show. In May, individual investors pushed stockholdings to their highest level in nearly 3½ years, increasing them for the fourth consecutive month, according to figures from the American Association of Individual Investors. Investors have also lowered their bond and cash allocations in recent months.

Households and corporations are expected to buy roughly $500 billion in U.S. stocks through the end of the year as individuals continue trading stocks and companies buy back more shares, Goldman Sachs analysts recently estimated. They project household demand for equities to reach a record $400 billion by the end of the year. 

Still, the record demand from fast-trading individuals and prolonged period of placid trading for major indexes have some on Wall Street tempering their expectations. 

“We’ve already had a phenomenal run,” said Mona Mahajan, senior U.S. investment strategist at Allianz Global Investors. “So the second half of the year will have more moderate gains than the first half.”

Investors will be monitoring the start of second-quarter earnings season in the weeks ahead to see how challenges such as supply-chain disruptions and rising prices are affecting the largest U.S. companies. Economic data points like Friday’s jobs report also will be in focus as the tug of war between different segments of the stock market continues. 

“We’re still in an economic recovery, and we’re seeing a lot of earnings momentum and a lot of corporate strength,” said Liz Young, head of investment strategy at SoFi. “That should bode well for markets.”