By John Persinos
This past weekend over beers, a buddy complained to me that he still worries about money, despite a recent salary bump, because his bigger paycheck simply encourages his family to spend more.
I explained to him that he's the victim of the "hedonic treadmill." The word hedonic relates to pleasant or unpleasant sensations. According to the concept of the hedonic treadmill, when change happens, good or bad, human beings tend to quickly adapt. The change becomes the new status quo. Complacency sets in.
What's all this have to do with investing? Equities currently hover at all-time highs and yet many investors have no love for this bull market. They suffer amnesia about how humankind narrowly averted catastrophe.
In early 2020, a deadly global pandemic triggered the worst financial crisis and economic downturn since the Great Depression of the 1930s. The damage to society and the markets fell just short of apocalyptic.
Unprecedented fiscal and monetary stimulus, combined with a "moon shot" vaccine development program, saved global capitalism and by extension, your portfolio.
We're still dealing with the aftershocks. However, the major U.S. and overseas stock market indices currently hover at record highs (see table).
As of this writing Monday morning, the S&P 500 stands at roughly 4,540. UBS Global Wealth Management forecasts the index will hit 5,000 by the end of next year.
Rates of COVID infections, and unemployment levels, are falling around the world. Projected global economic growth rates for Q4 and full-year 2022 are healthy. Corporate earnings in the U.S., Europe, and Asia are exceeding expectations.
Central bankers around the world, notably Federal Reserve Chair Jerome Powell, are arguing that supply chain disruptions and concomitant inflationary spikes are temporary and preferable to a full-blown depression.
To be sure, inflation has been running hot and it could prompt the Fed to hit the monetary brake sooner and harder than expected. But with $8.4 trillion on the Fed's balance sheet, and its near-zero rate policy still in effect, more hawkishness from the U.S. central bank shouldn't come as a surprise. The economy is no longer in crisis mode.
That said, the big story for the rest of this year and into 2022 will be inflation. Whether it continues to run hot or eventually moderates, rising inflation is a reality. Hard assets and commodities belong in your hedges sleeve.
The week ahead…
In coming days, key economic reports with the power to move markets will be on the docket. We face a busy week of hard data, notably the S&P Case-Shiller home price index, new home sales, and consumer confidence (Tuesday); initial jobless claims, U.S. gross domestic product, and pending home sales (Thursday); and consumer spending and core inflation (Friday).
Read This Story: What to Make of Mixed Signals on Housing
The housing market is a leading economic indicator and the sector's signals lately have been contradictory. This week may provide clarity. Friday's inflation report looms large as well.
Also this week, we're due to get earnings results from giant technology firms, including Facebook (NSDQ: FB), Alphabet (NSDQ: GOOGL), Amazon (NSDQ: AMZN), and Apple (NSDQ: AAPL).
These Silicon Valley behemoths account for a disproportionate share of the S&P 500 index. If their operating results follow the season's pattern so far and beat expectations, the rally will get the impetus for its next leg higher. If they stumble, the broader market will probably lose momentum.
But optimism is warranted. According to research firm FactSet, more S&P 500 companies are beating earnings estimates for the third quarter than average, and beating those estimates by a wider margin than average.
Analysts also expect year-over-year earnings growth for the S&P 500 of more than 20% for the fourth quarter and earnings growth of more than 40% for the full year.
So yes, stay vigilant. But don't fight the bull market.
Catch the next wave…
Despite the positive factors I've just described, maybe you're still worried about certain risks, such as inflation, monetary tightening, and a possible COVID resurgence.
I wouldn't blame you for being nervous. But I would blame you for being timid. Don't pass up solid opportunities.
My colleague Dr. Stephen Leeb just pinpointed a $128 trillion profit "wave." This wave should prove unstoppable, regardless of the pace of inflation, changing Fed policy, or the path of the virus.
Dr. Leeb is chief investment strategist of our premium publication, The Complete Investor. After nearly three decades of painstaking research, he has discovered a global economic megatrend that's poised to make early investors rich. Act now by visiting this link.
John Persinos is the editorial director of Investing Daily. Subscribe to his video channel.
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