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T&V Commentary | Q1 2023

The stock market is the only market where buyers run away when prices are low.


1. 2023 is not 2020 and not 2008

2. Economists warn of coming recession, the market sees it differently

3. The market sees the next rate cut cycle coming

4. We remain in a balanced position and gradually reduce cash holdings


1. 2023 is not 2020 and not 2008

As financial advisors, we would love to tell our clients what will happen with inflation, interest rates and bank closures. But the truth is, unfortunately, that we don't know. No one knows. But we do know one thing: we have seen worse. Remember 2020, when the whole world came to a standstill for weeks? We thought it could be an economic apocalypse like we had never experienced before. And do you remember 2008? The banks fell like leaves from a tree. The market was in free fall. It was cruel. And do you know who was rewarded? The brave ones who stayed the course and stayed invested or even reinvested!


The list of disasters in the last 100 years could go on and on; such as Great Depression, 25% unemployment, 19% inflation, 20% interest rates, world wars, assassinations and impeachments of presidents, 9/11, Cold War, nuclear proliferation, etc. And guess what? We made it through.


The market continued to average 6% per year, despite some bumps along the way.


2. Economists warn of coming recession, the market sees it differently

As recently as last autumn, a recession was predicted with a high probability for this year. Then it was cancelled, then postponed, and now the majority of economists are moving back to the supposedly certain statement that it is inevitable. And what are the stock markets doing? They are painting the opposite picture.

Transportation stocks, which should be a good barometer of future expectations of economic activity, are holding up well. Semiconductors, which are the modern means of transport as they drive activity around digital information, have made an impressive comeback in recent months. On the other hand, the three weakest sectors year-to-date are those considered the most defensive: Utilities, Healthcare and Consumer Staples.


This is not exactly what one would expect if the market was worried about what is to come. We know it's easy to find negative headlines about the status quo of the world. It is also incredibly easy to be negative at the moment. But when the stock market is so far apart from the current narrative, we need to listen to the market.


3. The market sees the next rate cut cycle coming

The banking collapse has caught up with monetary policy. It is likely that the monetary authorities will soon initiate a regime change in the hitherto restrictive monetary policy. Of course, they do not want to communicate it in this way. In order to save face and confidence in their actions, they have instead implemented the previously announced interest rate hike in March 2023. But secretly, monetary policy will gradually shift to easing because what has happened shows that the sharpest cycle of interest rate hikes in recent decades, over a few months, has pushed the financial system to the limit of what it can tolerate! During the zero-interest rate phase orchestrated by the central banks, the risk players bought too many and in some cases too few liquid risks and, on top of that, took on too much debt. On 3 May 2023, at the next Fed meeting, chances are high that no more interest rate hikes will be announced.


Inflation has not yet been defeated, but now politicians and central banks will want to change priorities. The cycle of interest rate cuts will start earlier than planned and thus inflation will remain persistently high to the detriment of citizens. The bond markets will gain more stability in the short term, although they will not become more attractive in terms of assessment. Where the yield curve is very inverted - as in the case of the US dollar - short-term interest rates in particular will fall and reverse the inverse yield curve over the coming months. For the time being, we therefore see only limited potential for long-dated bonds, while things look better for the equity markets.


4. We remain in a balanced position and gradually reduce cash holdings

Fear and disorientation have always been bad advice for an investor. Perspectives are better. You can't miss the start of the next stock market rally - because otherwise you will miss out on the bulk of the returns. A gradual easing of monetary policy and the transition into the long-awaited cycle of interest rate cuts will lead to a rise in the markets.


We have to be patient for a while and concentrate on ignoring the noise. In the end, however, we will be glad that we were patient and took the opportunity to be "greedy" when others were fearful.


As always, we thank you for the trust you have placed in us and we look forward to investing together in 2023!



T&V Commentary Q1 2023
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