Trend reversal? The investors' blissful ignorance behind the stock market's new highs.

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Legendary figure Peter Lynch advises investors to stop paying attention to the news. "Those who never bother to think about the economic situation, happily ignore the market conditions, and invest regularly as planned are better off than those who study and try to time their investments, entering when they are confident in the stock market and exiting when they feel uncomfortable."

This year, the news is exceptionally nauseating: trade wars, real wars, fears of economic recession, and AI doomsday theories. Yet, we find ourselves back at the historical highs of Nasdaq and S&P 500. There’s nothing particularly new about this.

Lynch wrote in his 1993 book "One Up on Wall Street": "If you closely follow the negative tone of most of our 'where is the economy headed' meetings over the past six years, you would have been scared out of the stock market during one of the strongest market rallies in modern history, while those investors who remained blissfully ignorant of the apocalypse happily tripled or quadrupled their money."

Since then, the market has made greater progress, and I believe the only way to fully embrace these advancements is to remain blissfully ignorant of the world. It is easy to look at the long-term performance of stocks and think that everyone should always be fully invested. However, looking at the daily news and believing that now is the time to invest is much more difficult. Lynch suggests that you should not try. "The best way to avoid being scared off by the stock market is to regularly purchase stocks on a monthly basis."

American investors have largely embraced this suggestion, which Lynch might not have imagined. Currently, it is estimated that 70 million American workers are investing in 401k plans, rhythmically putting pre-tax funds into the stock market, regardless of the news. This has made the volatility of the stock market lower than in other situations. Or at least it should, perhaps. This should also make them more valuable, as investors would accept lower returns (i.e., higher valuations) in exchange for assets that worry them less. Thus, it makes sense that stocks are more expensive now than in the past. They may become even more expensive. As long as we have jobs—therefore have 401k plans—the market may struggle to decline significantly. This will make stocks increasingly less scary—and also more valuable.

Let's take a look at the chart.

Still saving: In June, the personal savings rate in the United States slightly decreased to 4.5%. This is historically low, but still a massive and growing figure of 4.5%. A portion of these savings will be used each month to purchase stocks, regardless of the news.

Emotions still need to catch up: The stock market has returned to historical highs, but the investor sentiment measured by AAII remains on the neutral to bearish side.

Moving along the risk curve: American investors are embracing risk, perhaps because after experiencing all the seemingly bad news this year, stocks seem to carry less risk. If the overall risk of stocks is low, then it makes sense to buy stocks that carry higher risks.

The rest of the world is buying value: According to data from Goldman Sachs, there is an unprecedented divergence between the strong performance of U.S. growth stocks (dark blue line) and the strong performance of value stocks in other parts of the world (light blue line). While other parts of the world seek safety, U.S. investors are fully committed to growth.

Is everything safe now? Ed Yardeni pointed out that the profit margins in the semiconductor industry continue to rise. Historically, semiconductors have been the most cyclical, and thus the highest risk investment area. Now, they seem to be almost defensive.

Is it good news or bad news for humanity? The U.S. Census Bureau survey shows that in the past two weeks, less than 10% of companies reported using AI. This may mean that AI is just beginning to disrupt the job market. Or it may mean that humans are more useful to employers than the AI hype would have you believe.

What is the direct reason for setting a new historical high? The expectation of an upcoming interest rate cut gives investors a reason to buy now.

One less reason to worry: The Cleveland Fed InflationNow model shows that the year-over-year growth rate of prices measured by the US CPI in the second quarter is only 1.6%.

Long-term stocks: Bank of America strategists indicate that the U.S. stock market is on the verge of its seventh "major breakthrough" since 1990.

An article by Bloomberg noted that the stock market reached a new high this week, listing all the things that should worry the market — tariffs, the economy, consumer spending, and even cautious professional advice — and concluded: "Investors seem to be ignoring all of this." Peter Lynch would agree.

Wishing all readers a pleasant weekend.