The Virtuous Circle
Calming markets and higher share prices are soothing fears, leading to higher investor confidence levels, which in turn sparks share buying, further calming markets and pushing share prices higher, lifting confidence further. The virtuous circle is in play, and the increasingly desperate arguments for a continuation of the bear market highlight the potential for a seller capitulation. These two factors may see “melt ups” in share markets over the coming days and weeks.
Materials stocks have finally found favour after months in the wilderness. Key factors include severely reduced share prices, stabilising commodities and potential for China data next week to back market theorists away from their economic collapse scenario. Rallies of 4-7% in BHP and Rio ADRs overnight virtually guaranteed today’s mining dominance. Energy shares are playing along after a slow start, but buying appears general, and healthcare, financial and telco stocks are also in favour.
Weaker machine orders in Japan have flattened Nikkei shares, but had little impact on the regional performance. Higher volumes across the region confirm the shift in sentiment from negative to positive. Locally, there are no major data releases, and no obvious derailer of the rally.
Frequently Asked Questions about this Article…
The 'virtuous circle' in the stock market refers to a cycle where calming markets and rising share prices boost investor confidence, leading to more share buying. This further calms the markets and pushes share prices higher, continuing the cycle and potentially leading to a market 'melt up'.
Materials stocks are gaining popularity due to severely reduced share prices, stabilizing commodity prices, and the potential for positive economic data from China. These factors have led to significant rallies in companies like BHP and Rio, making materials stocks attractive to investors.
Energy shares are experiencing a positive trend after a slow start. The general buying interest in the market has extended to energy stocks, contributing to their improved performance alongside other sectors like healthcare, financials, and telecommunications.
Weaker machine orders in Japan have flattened Nikkei shares, but they have had little impact on the overall regional market performance. The shift in sentiment from negative to positive is supported by higher trading volumes across the region.
Currently, there are no major data releases affecting the local stock market rally. The absence of significant economic data or events means there are no obvious derailers of the ongoing market rally.
A 'melt up' in stock markets refers to a rapid and unsustainable rise in share prices, often driven by a surge in investor confidence and buying activity. This can occur when investors rush to buy shares, fearing they might miss out on potential gains.
Investor confidence plays a crucial role in stock market trends. When confidence is high, investors are more likely to buy shares, which can lead to rising share prices and a positive market cycle. Conversely, low confidence can result in selling and declining markets.
Currently, investors are favoring sectors such as materials, energy, healthcare, financials, and telecommunications. These sectors are experiencing positive trends due to various factors, including stabilizing commodity prices and general market optimism.
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