Investors bought the dip, once again
After a quick drop everyone looks to 2022 (and I'll show you some forecast)
Dear all,
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In case you don’t know, everyday I post a couple of charts on my Instagram profile: market.radar
Now let’s give a look to the last market events.
Just few days ago everyone seemed terrified of the arrival of the Omicron variant, and investor rapidly turned defensive, selling risky assets and buying safe havens (like US Treasury or German Bund).
This week everything looks back to normality: investors bought the dip once again!
Just look at the volume from the retail army:
Apparently some good news arrived about Omicron variant:
The new variant “appears to be highly transmissible” according to de Villiers (Chief Clinical officer at Mediclinic). “So far, a lower percentage of admitter Covid-19 patients require intensive care and ventilation” he added. The current perception, even if it is still too soon to call, is that Omicron has mild symptons and lower mortality.
Secondly, Pfizer announced that a third dose of their vaccine could give a good protection against Omicron. The company will have more data by the end of the year and it will give further indications ASAP.
Market reactions to those news? Very positive. Just look at the equity indices and the 10-Yr Treasury Yield.
Drawdown? No, thanks
The S&P 500 even this time didn’t have a drawdown higher than 5%.
In the last year only one time the index fell more than 5%: at the beginning of October 2021 there has been a 5.2% fall (you cannot call it a “correction”).
It is interesting to note that in the last year a good strategy would have been to buy every 4% S&P 500 drop (but it is easy to talk later).
The same happens in Europe, where the largest yearly dip happened in December, but still not very big (5.5% drop).
In any case, don’t think that everything has been so easy and so good. There have been lot of dips that kept dipping.
An example? Chinese tech companies. Here the chart of the ETF KWEB:
A drawdown higher than 60% is not very common and not very good for any portfolio.
Even many growth US stocks have had terrible drawdowns, probably due to extreme valuations. Below you can see a list of stocks included in the Russell 1000 (with a market cap higher than $2 Billion) with the biggest distance from their 52-Week high:
It is very useful to remember that even great companies, with high growth rates, are not a good investments if too expensive. In the above list there are companies with a very interesting business potential, but the stock ran too fast. Markets is currently full of trap like those.
Just as a reminder, make always your research before to buy any stock: you cannot be always right, but you have to be confident when you entering a trade. Don’t buy only because of FOMO.
2022 Market Outlook
In the last two weeks many investment banks released their market outlook for 2022. On average, strategists are positive on equities, both on U.S. and Europe.
Here some price target:
S&P 500
Stoxx Europe 600
Among the bulls there are Goldman Sachs and Jp Morgan, and here you can see their detailed estimates for next year:
Interesting to note that both are bullish on U.S. and Europe, while Goldman has a better forecast than JPM for Japan.
Moreover JPM is very positive on China (38% of potential upside) and Emerging Markets.
Let’s see their forecasts even on other assets:
USD: Goldman sees EUR/USD at 1.15, while JPM has a 1.10 target. (I personally stay with the latter, long USD).
10-YEAR YIELD: both banks see yields to go up, at least till 2.0%.
OIL: JPM is one of the biggest bulls on commodities, especially on oil where the bank sees a potential 20% return. GS is positive on oil, but less than its competitor (15% potential return)
GOLD: Here there is a big divergence! Goldman is bullish on gold and it has a target price of 2,000 USD, while JPM is very bearish with a target of 1,520 USD. Who will be right?
We’ll see in 12 months who is right, but be even ready to see lot of estimate changes from the above levels, as new data will come.
Remember: this is not a financial advice! Make your analysis before to make any investment!
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Have a great weekend!
Market Radar
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