After a tough period, have things started to reverse on Friday the 13th?
May 17, 2022
In case you missed it, here's our current market views.
Volatility continues to hound the markets. ‘Be brave when others are fearful’ springs to mind and on Friday we saw a small bounce of bravery in a market that had been dropping all week.
Those selling now, could well be selling at a huge discount only to no doubt look to buy back in when the markets have steadied. The only problem with this menatility is it is almost always guaranteed to lose money. When things are low, and the world is fearful, buy for the long term, not the short term.
Retail traders are now in negative territory over the last 30 months. It is tough out there, but the natural urge to get out when things are down is simply locking in a loss. On Firday we saw what can happen when a little stability comes back to the market.
Many investors are now optimistic that the bulk of any potential downturn is baked into asset prices. T Rowe Price, the $1.4tn asset manager, has been gradually building its exposure to equities after starting the year underweight and rotating some of its holdings from defensive sectors, such as utilities, into more beaten-down areas such as industrials and semiconductors.
“Markets are pricing in a very high probability of a very bad event playing out; if it doesn’t, some of those cyclical stocks will massively re-rate higher, and if it does happen they’ve already priced a lot of that in,” said T Rowe portfolio manager David Giroux.
Giroux, who manages one of the firm’s flagship funds, predicted markets would continue to be volatile in the short-term, but said he was more optimistic about the longer-term outlook. “If you wait for certainty to return, for the all-clear, you’re going to be buying things that are already up 30 per cent.”
The $1.3tn cryptocurrency industry was hit Thursday by one of its toughest challenges when stablecoin Tether — a critical cog in the market — failed to maintain its link with the US dollar. Tether tumbled as low as 95.11 cents in European trading, far below the $1 peg that it seeks to maintain as it faced an intense bout of selling pressure.
Its price later recovered, but the rare slip-up, days after the failure of smaller rival TerraUSD, sent bitcoin — the world’s biggest digital asset — sinking to its lowest level since late 2020. Ratings group Fitch said the troubles at Tether and TerraUSD “highlight the fragile nature of private stablecoins, and will accelerate calls for regulation”.
In congressional testimony on Thursday, Janet Yellen, the US treasury secretary, said the collapse of TerraUSD showed the dangers of stablecoins, which the Biden administration and US regulators have grown increasingly concerned about. “I wouldn’t characterise it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kind of risks that we have known for centuries in connection with bank runs,” Yellen told lawmakers.
The issues in cryptocurrencies would explain why there has been a heightened sell off in equities pushing values down below that of long term averages. If the fear dissipates there, then equities could begin their steady climb back up. Interest rate rises and inflation are all now known, expected, and priced in. This leaves a lot of room to the upside if any of these fears don’t come to fruition.
Dow Jones: -11.40%
Hang Seng: -14.95%
FTSE 250: -16.63%
Most of our traders have felt the pain of this fall so far in 2022. When these markets reverse, there will be a lot of money to be made. We don’t know when it will be, or how quick it will be, but empirical evidence would suggest that it will happen.
With the occasional clever liquidation from the Consultancy who run our FTSE tracker, it is currently up 2.5% year to date, and even more impressive is a Portfolio Platform favourite Cambridge Futures, who have somehow managed to keep their head above the water posting an impressive 3.3% so far in 2022.
This is truly remarkable. We have no doubt the others will make their way back into the black, but right now, it’s about managing the volatility as best we can. Well done to TPC who look after our trackers, and also to Cambridge Futures. It will be a tough year to score well, but we have faith, and hopefully, the markets can enjoy a better end to the year than they did the start. There is a long way to go until Christmas, especially in these markets.
Our traders have solid track records and we trust them to carefully risk manage their way through this correction. Soon, we should all be able to reap the rewards.
Enjoy the rest of your weekend, and if you'd like to schedule in a call over the next week, you can do so by clicking here.
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