Investors fearful of a possible recession
A new fear in a tough year
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Panic on markets
After four difficult months for markets, May is not going very well too. At least for equity investors.
In the last month almost all the indices are down.
On Friday, the S&P 500 has been even in bear market for a couple of hours, before to jump in the last final hour.
What is scaring investors in such a big way? There are several factors, but the newest one is the fear of an incoming global “recession”, as you can even see from the monthly Fund Manager Survey from BofA.
An hawkish Fed is still the biggest worry of fund managers, immediately followed by the recession.
Fear of an global recession are rising as new economic data weight on growth and inflation forecasts.
Where to invest now?
The main point is where to put money now.
It is relevant to mention the word “diversification”. In tough moments it is always good not to be too aggressive nor too defensive, so diversify your strategies and assets.
I would like to mention 3 asset class.
First of all I think it is a good idea to hold some cash: we don’t know when the drawdown will end, but it is good to have money ready to be used in case of more pain.
Secondly, it could be a good idea to allocate part of the portfolio to bonds. In case of recession central banks will probably have to be more accomodative, and after the big yield increase in the first part of the year, maybe there will be less pressure on bonds, and space for some gains.
You can see that the 10-year Treasury yield is already going down.
Better to stay on safe bonds, go on investment grade. I would prefer to not increase the credit risk, while I would like to increase the duration risk and buy bonds or ETFs on bond with a longer maturity.
Finally, after the big fall on stocks, I see rising opportunities. In case of recession, the median S&P 500 drawdown on stocks is 24%, and we are already close to 20%.
Just to be clear, market usually bottoms several months before the end of a recession.
If you are a long term investor, it could be a good idea to start consider again the purchase of stocks: better to proceed for small but constant purchases.
What to buy? S&P 500 and Nasdaq are now priced at very interesting forward P/E, so both are interesting.
Speaking about single stocks I prefer large caps that have the following features: reasonable multiples, solid revenue growth, positive earnings and low debt.
Have a great weekend!
Market Radar
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Succinct, and sensible.
Very good advices for everyone out there.. simple principles but so effective!