4.2 Market Outlook

This article does not indicate or recommend any trading timing.

Please make your own investment decisions.

As expected, the first day of the new fiscal year on 4.1 saw the market move toward higher stock prices.

Although the rally is still in its early stages, the weakness at year-end has receded, and the market is proceeding solidly.

In yesterday's analysis, I wrote that the market seemed to be in an excess liquidity environment with rising gold, rising bonds, and rising stocks, so readers could trade calmly without focusing on correlations.

In markets, correlation refers to the reactions of each asset to the leading, or “main character,” in a given period.

From January to March, the market was led by rising interest rates; as rates updated to new highs, tech stocks were sold off, the dollar was bought, and real yields rose, leading to gold being sold as well.

The shift from growth to value stocks accelerated, lifting the overall market as it shifted toward an economic recovery.

This year's price movements indicate changes from the stock market during the COVID-19 pandemic.

Typically, April sees renewed investment activity, and barring major risks, the market tends to rise; this year, abundant liquidity is expected to amplify its effect more than usual.

The driving force is the very strong economic indicators from the United States since the turn of the year.

Honestly, looking at the entire world, capital has been flowing into the United States, which enjoys strong economic indicators and large-scale fiscal spending, forming a robust market that has dominated globally at the start of this year.

The currency market is easier to read in terms of relative power, and the firmness of the U.S. Dollar Index is supported by this.

The author has denied the simplistic notion that more monetary easing and currency issuance will automatically lead to a weaker dollar since the beginning of this article series, but the outlines are now becoming clearer, perhaps.

Regarding the dollar, as the global anchor currency, its dynamics are not easily decided, and because it is the anchor currency, the dollar should remain strong; a strong dollar indicates that the U.S. economy is in a healthy condition.

Looking back, while I do not directly mention dollar strength or weakness, Chair Powell and Secretary Yellen have so far pursued a dollar-strong policy.

Even as the market worries about the unusually rapid rise in U.S. interest rates, there is no sign of measures to suppress rates, with the market treating the rise as driven by economic growth.

Inflation concerns exist, but it is still a “dollar-strength” environment, so domestic U.S. inflation rates can be considered moderate.

Emerging markets are struggling in this environment, and while the global economy certainly faces inflation risks, the overall environment seems to be more favorable for the United States; funds that once flowed into the U.S. are likely to spread to the world at large.

In that sense, one could say the United States is enjoying a unilateral advantage.

In Japan, there is no sign of economic recovery, and the yen is weakening; in all likelihood, inflation will be felt more directly in the near future.

After all, simply keeping yen in savings erodes daily wealth, so holding yen becomes a risk.

I digress a bit, but with the employment statistics approaching, the market is likely to be cautious, so today I will take a longer-term view, looking at a horizon of one year to five to ten years. There will be fluctuations, but as long as the Biden administration remains in power, I would like to outline my market outlook.