Half-year reports will enable investors to work out for themselves if surge is about to become bust

Boom or  bubble?  There is a growing divide in the  investment  world between  those   who think the recovery from  the Covid-19 pandemic will add extra impetus to stock markets  and  those who think  bubbles are inflating to  bursting point.

At  the  beginning of the year global stock market indices hit  new  highs,  adding  another chapter, as one commentator  noted, to 12 months of  apparent defiance of  economic   gravity. The  surge  prompted  the London  “Economist”   to  ruminate on what it  called  the  “crazy  upward march in stock prices” and why it might just continue.

In assessing  why  markets  could persist in “melting up”  the Economist pointed to several factors  driving the gains:  an end  to the Covid-19 pandemic  is in sight; rich-world governments are  rediscovering  the joys of  fiscal pump-priming; and real interest rates  are  so  low  as to make  sky-high stocks look cheap. It noted,  too,  that markets had been looking beyond the damage from Covid-19 to the post-pandemic recovery.

Quest for comfort at a time of pandemic and panic leads us to hope our govt has great experts – and listens to them

We needed an antidote to the grim outlook that prompted the RBNZ to reduce the Official Cash Rate to a level that will do precious little for our bank savings and triggered a further decline on the NZX50 that further shrunk share portfolios .

Help.

We were encouraged by a New York Times article by Neil Irwin headed How to Stop Worrying and Love a Falling Stock Market

It’s perfectly natural to be terrified, he assures us – but big losses bring certain benefits, too.

Great.

The fact that stocks are extraordinarily volatile right now … isn’t a problem with stock investing — it’s a feature! If it weren’t for these periods of fear, stocks would trade at levels that offer returns more like bonds or cash. The fancy academic name for this is the “equity risk premium,” but an ordinary saver can simply think of higher long-term returns as the compensation you receive for tolerating volatility.

It’s a good reason not to keep savings that are needed soon in stocks. If you’re looking to pay for a house or car in the short term, that money probably shouldn’t be in an asset that can lose 10 percent of its value in a single day, as stocks did on Thursday.

But for retirement or other long-term savings, the sensible approach is to set an asset allocation that makes sense for your level of risk tolerance and stick to it. And then think of the sell-off of the last few weeks as the kind of episode that isn’t so much something to fear, but a moment of opportunity — even if an unnerving one.

Hmm.  We remain uneasy if not unnerved.