U.S. markets close in 4 hours 48 minutes
  • S&P 500

    4,107.42
    -44.68 (-1.08%)
     
  • Dow 30

    33,980.53
    -288.63 (-0.84%)
     
  • Nasdaq

    13,165.33
    -224.10 (-1.67%)
     
  • Russell 2000

    2,176.88
    -30.10 (-1.36%)
     
  • Crude Oil

    66.43
    +1.15 (+1.76%)
     
  • Gold

    1,826.30
    -9.80 (-0.53%)
     
  • Silver

    27.41
    -0.26 (-0.93%)
     
  • EUR/USD

    1.2074
    -0.0078 (-0.64%)
     
  • 10-Yr Bond

    1.6830
    +0.0590 (+3.63%)
     
  • GBP/USD

    1.4100
    -0.0044 (-0.31%)
     
  • USD/JPY

    109.4460
    +0.8260 (+0.76%)
     
  • BTC-USD

    55,797.98
    +40.02 (+0.07%)
     
  • CMC Crypto 200

    1,509.56
    -54.28 (-3.47%)
     
  • FTSE 100

    7,017.67
    +69.68 (+1.00%)
     
  • Nikkei 225

    28,147.51
    -461.08 (-1.61%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

One thing investors can 'always' count on

Sam Ro
·Managing Editor
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Monday, March 22, 2021

There will 'always' be a top risk, but some are worse than others

"There is always some reason or the other since the start of this bull market to complain/worry about," Bank of America strategists led by Ajay Kapur wrote last week (emphasis ours). "That's why bull markets climb a wall of worry."

Kapur and his team were discussing how quickly worries about inflation supplanted worries about COVID-19 and its economic impacts. This shift in worries was confirmed by BofA's new monthly fund manager survey, which showed inflation and concerns of a "tantrum" in the bond market ended COVID-19's 12-month streak as the "biggest tail risk."

While there's no question the experience of the coronavirus pandemic has been unprecedented, it is "always" the case that there are top risks that stock market investors have to be worried about. Even in the best of times.

That's just how investing in stocks works: it's risky. And so investors demand a premium for taking on these risks, which is why returns for stocks are higher than returns for risk-free securities like Treasury securities.

COVID-19 was a massive risk event that came with high uncertainty, and the stock market crashed until it eventually got to a level where investors could see that the potential rewards justified the risk of buying equities. The fact that the S&P 500 (^GSPC) is up nearly 80% since its March 2020 low speaks to the kind of return investors are rewarded with when things are particularly bleak.

Now, just because a concern becomes a top risk doesn't mean that that risk will be as damaging as any other top risk. As Kapur and his team argued, despite inflation becoming a top risk, the "pillars" of the bull market remain.

This sentiment is shared by BofA's peers at RBC Capital Markets. A recent survey asked the RBC's analysts what kept them up at night.

"Our analysts exhibited some concern about inflation," RBC's Lori Calvasina wrote. "Importantly, despite this evidence of inflation angst, most of our analysts still have a positive outlook for performance, margins, and fundamentals... To dig in a little deeper on the inflation debate, we also asked our analysts to give us their thoughts on how reflation – the broader topic of economic reopening – impacted their industries from a fundamental perspective. Overall, 86% said reflation/economic reopening is positive or very positive for their industries."

The takeaway here is that some risks are more problematic than others. And as Morning Brief highlighted in its Chart of the Decade, there will always be a "biggest risk" on the top of investors' minds. And historically, the stock market has found a way to recover any losses that come with the rise of these risks.

By Sam Ro, managing editor. Follow him at @SamRo

Yahoo Finance Highlights

Square’s Cash App vulnerable to hackers, customers claim: 'They're completely ghosting you'

Elite high school athletes ‘deserve’ more than just pay: Overtime co-founder on amateur basketball

How a potential Jennifer Lopez, Alex Rodriguez split would be a 'business divorce,' minus the marriage

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.

Find live stock market quotes and the latest business and finance news

For tutorials and information on investing and trading stocks, check out Cashay