Stock Groups

Strategist says market may become a ‘meat-grinder of forlorn hope’


LONDON – Investors looking for value in the stock market during the ongoing downturn may be “deluding themselves,” according to Sean Corrigan, director at Cantillon Consulting.

Fears that central banks will have to hike interest rates aggressively to curb inflation — at the risk of quashing growth as the global economy suffers concurrent hits from the war in Ukraine and other supply shocks — have led to broad selling across global markets in recent months.

It S&P 500Closed Thursday’s session with an 18% decline from the peak. This is approaching bear market territory. Stoxx 600The MSCI Asia ex Japan is now down nearly 12%, and has dropped 18.62% over the past year.

The tech-heavy sectors, such as growth and tech stocks, are the most susceptible to steep rises in interest rates. They have experienced particularly severe declines. Nasdaq 100This is a drop of more than 29% from the record setting high in last year.

After a rally which had lifted global stocks from their initial depths, the negative start of the year was followed by a rebound. coronavirus crash in March 2020Record highs are being set by tech giants and growth companies.

Some investors see weakness in recent times as an opportunity to buy, however Corrigan suggests that this belief could not be justified given the current macroeconomic conditions.

A Friday note by him suggested that, since many of those who held growth stocks had borrowed capital and were performing so well, some might be “swept aside when the tide is at its end.”

“People always say the market comes down on profit taking – it comes down on loss realization. According to him, the person who is at the top of the sales pyramid sells to other people, and they realize that it won’t hold.

“And if they’re losing a lot of money in one market, which might be somewhat peripheral to the real thing, there’s another old expression – pulling up the flowers to water the weeds. The other thing is sold to make margin calls, or to reconstitute your finances. At the moment, we’re clearly at that stage.

Despite the risk-off sentiment that has prevailed of late, the S&P 500 remains more than 16% above its pre-Covid high in early 2020, and Corrigan argued that the world is not in a better place than it was at that stage.

He said, “Even those who desperately try to convince themselves there is value somewhere down here just because the asking prices are lower are probably still lying to themselves.”

Corrigan claimed that the consumer’s focus is shifting from companies with the highest post-Covid rallies to the ones facing shortages or spiraling prices for “staplesof life”, such as food and energy.

“We are having problems with our energy and food. We also have issues with other essentials. Do you really want to spend $2,000 on a bike that can be pedaled in your backyard? It’s not. That is why. PelotonHe stated that the enemy had been defeated.

“How many different types of businesses like those are there that can be used to address the core problems we, for perhaps the second time, have faced?”

Peloton shares plunged nearly 60% in the past year.

Acronym arguments deteriorating

You may also be interested in other speculative investments, like cryptocurrencies, have also crateredInflation worries are now secondary to growth fears, investors’ primary concern. bondsThe dollar – traditional safe havens – have rallied.

A Friday research note Barclays Head of European Equity Strategy Emmanuel Cau said the typical acronym-based arguments that keep investors in equities — such as TINA (there is no alternative), BTD (buy the dip) and FOMO (fear of missing out) — were being challenged by the worsening growth-policy trade-off.

In recent months, the central bank’s rhetoric and policy has been an important driver for market action as investors try to determine how fast and severe they will tighten to stop runaway inflation.

Central banks are now faced with the difficult task of dismantling the stimulus they have used to help economies survive the pandemic.

The panic button is still not pressed yet. Cau stated that while high-speculative assets may have crashed, there is little evidence to suggest retail investors are abandoning equities.

Federal Reserve Chairman Jerome PowellIt was acknowledged that Thursday’s U.S. central bank cannot guarantee a “soft landing” for the economyInflation control without creating a recession is possible.

Corrigan doesn’t expect retail investors to have faith in the bull markets, but he does.

According to him, “As far as the notion that inflation (i.e. increases in prices) will soon meaningfully decline,” he wrote Friday. He stated in Friday’s note that he believes inflation (i.e., price rises), will soon meaningfully fall. But, that seems distant.

“The market could very well be a meat-grinder for lost hope.”