The stock market is still bullish. Those are sentiments echoed by strategies at Merrill Lynch even as rising yields continue to trigger corrections from all-time highs. According to the strategists, massive free liquidity, earnings per share growth, and substantial market breadth affirm the recent corrections’ bullish momentum.
Stocks Bullish Thesis
The only time that investors should look to be more defensive is when liquidity conditions tighten. Likewise, investors should be cautious when EPS growth starts to decelerate and market breadth breaks down. As it stands, none of the above is in play.
Similarly, the strategist insists against being overly concerned about rising yields. Yields powering to one-year highs has been a point of concern amid concerns they could result in a significant spike in borrowing costs.
Amid the concerns, the Merrill Lynch strategists believe it is important to remain bullish. In this case, the focus should be on buying cyclical, value, and looking at highly undervalued tech. The call on tech comes as a surprise, given that it is one of the market segment that has felt the full brunt of rising yields.
The NYSE FANG+ index is down by more than 8% after hitting a record high in February. Sell-off in the segment has continued to edge higher on the Federal Reserve, failing to do anything to curtail a further spike in yields.
IPO Market Growth
Amid the rising yields and overall market correction, the IPO market is showing no signs of slowing down. More than 300 IPOs have already come to pass, affirming the strong demand for new listings. The IPOs have gone on to raise $102.3 billion, up by more than 763% from 35 offerings carried out for the same period as of last year.
The rate at which companies are going public is poised to more than double 2020 numbers. For all of 2020, there were a total of 457 IPOs raising $167.8 billion. The performance of the new IPOs has been more than impressive, with shares of more than 52 new IPOs jumping 65%. Some IPOs such as TRX Insurance Brokers has rallied by more than 1,000%.
