REVIEW OF THE WEEK

Earlier in the week, we suggested that the high level of fear in the market, and the subsequent equity sell off, should dissipate. It would seem that this is currently coming to pass.

As traders, we always keep a close eye on the Vix index which trades in the US and is often referred to as Wall Street’s fear gauge. Over the last week we have seen it drop by over 20% which is a good indication that markets are calming, and traders are evaluating their next moves.

Most equity indices have had a good week. Generally speaking, year to date losses are down to single figures and buyers are coming back into the market.

Given that the major fears have been rising inflation (it’s still rising), central banks raising interest rates (they did so this week) and the war in Ukraine (which hasn’t shown any signs of improving), you would be forgiven for wondering why stocks have all rallied this week.

Many will make up a reason. As we always say, the narrative tends to follow the market rather than the other way round, and anyone can come up with a reason why something has already happened, but the true fact is that it had simply dropped too far, and investors need to buy. When there are more buyers than sellers, the market goes up.

If you have money to invest, you are better off doing it when the market has dropped rather than when everything is great and the market is high. Investing isn’t a short term game so look beyond the next 6 months, beyond the next year, to where the economy will be in a better place than it is now.

Use other peoples panic to get into the market at a better price. We always tell clients this is the time to buy, not sell.

Fears came to pass, with violent swings in stock, bond and commodity markets as Russian forces moved into Ukraine and investors awaited the first rate rise from the Federal Reserve since 2018. The benchmark S&P 500 dropped nearly 15 per cent from its peak while the tech-heavy Nasdaq Composite fell more than 20 per cent from its all-time high.

In recent days the moves have started to reverse with the price of Vix futures contracts dipping back below those that expire later this year. Our traders say this indicates that some of the extreme unease about how far financial markets could lurch lower had dissipated.

A few of our traders have started to pull back some of the losses from earlier in the month as the outlook, while still fairly bleak, is better than it was. Hopefully they will continue to add to portfolios over the coming weeks as things steady. Some are now in positive territory for the year, and we fully expect others to join them over the coming months. If history has shown us anything, it’s that our traders know what they are doing, and should be trusted to perform.

We don’t expect the conflict to conclude imminently, as Mykhailo Podolyak, an adviser to eh Ukrainian presidency states, peace talks with Russia may last at least “several weeks,” even though there are signs that Moscow’s position has become more “adequate”.

“This process may drag longer,” given the number of mutually exclusive positions, Podolyak said. “There are some concessions that we definitely aren’t going to make,” “we cannot give away any territories.”

While a full peace deal may take longer, “what can happen in days is a cease-fire” that would open more humanitarian corridors. This is what we’re all hoping for.

Our fingers are all crossed that the situation doesn’t regress and that some agreement can be made. Most investment banks are still expecting equities to end the year in positive territory, and for that to happen, geopolitical tensions need to dissipate, not escalate.

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