Risks for stocks are elevated. Few would debate this. Valuations for Standard & Poor’s 500 stocks — according to data service provider FactSet, currently at 21.4 times forward earning — are higher than both the five- and 10-year averages of 18.1 and 16.2 times respectively.

Yet, US stocks have been inching inexorably higher this year — even though there is intermittent profit-taking — and leading global markets broadly higher. Case in point: The market saw another sharp selloff last Monday but recouped lost ground in the following days. All three major bellwether indices — the Dow Jones Industrial Average, S&P 500 index and Nasdaq Composite — remain not too far from all-time record-high levels.

A main reason behind last week’s volatility is fears that the Delta variant, which is driving a renewed surge in Covid-19 cases, will derail, or at least delay, the global economic recovery. Indeed, we are seeing the re-imposition of more stringent restrictions in parts of the world, particularly where the percentage of population vaccinated remains low.

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