Investors nowadays are very confused, much more than at any recent time. ‘Group think’ seemed convinced that interest rates were headed lower. Then opinions changed radically, and that view was reversed. Investors rushed to the exits to dump interest-bearing securities in order to conform to a new belief that interest rates now were headed higher.
Investors then flocked to the U.S. dollar because the anticipated move to higher rates would attract investors to the United States to capitalize on that. The mood changed as it was believed that the Federal Reserve Board soon would move to higher rates so dollar-denominated instruments became the investments of the day.
This opinion was not long lasting. The Federal Reserve Board then implied that economic activity in Europe was generally better than it was assumed earlier in the year. That led the herd mentality to switch opinions, selling their dollar holdings in favor of the euro market. That market would be better as the European banks would be able to raise interest rates soon, so dollar investments did not seem to be so attractive. The European central banks would start to raise rates, it was assumed.
To add to this perplexity banks in Europe would begin bond buying again to help lower interest rates as current data were less bullish than was the case formerly. The World Trade Organization then came out with a report that the economy in Europe turned less favourable. Weak oil prices and sluggish growth in Europe played a part in convincing investors that things were less optimistic than it was assumed previously. It was inferred that the world economy was running out of steam and perhaps would fall back into recession. That was the new consensus view.
So the uncertainty has baffled investors. They then decided that the only course of action was to buy common stocks. Interest rates were so low that bonds certainly were not appealing. Yet central banks still are buying bonds and thus supporting that market.
All these mood swings add to investors’ confusion. Thus, we have no choice but to assume that one should hedge bets and buy shares selectively, with a ‘wing and a prayer’. One, therefore, can sit back and wait for some clarification of economy trends, not a very satisfactory course of action, a reflection of the volatility of opinions. Perhaps no opinion is the best opinion. Hence in this era investors almost desperately are searching for a strategy, but there is nothing on the horizon that will help ascertain that.