LONDON – Investors looking for value in the stock market during an ongoing downturn may be “tricking themselves,” according to Sean Corrigan, director of Cantillon Consulting.
Concerns that central banks will have to raise interest rates aggressively to curb inflation – at the risk of crushing growth as the global economy suffers simultaneous blows from the war in Ukraine and other supply shocks – have led to a sell-off across global markets in recent months.
The Standard & Poor’s 500 Thursday’s session closed down 18% from its all-time high, approaching bear market territory, while the pan-European region Stokes 600 It’s down nearly 12% since the start of the year, and the former MSCI Asia index for Japan is down 18.62% since the start of the year.
Technology and growth stocks, which are most vulnerable to sharp rises in interest rates, have suffered particularly sharp declines, with technology ramping up Nasdaq 100 down more than 29% from its record high last year.
The negative start to the year came on the heels of a rally that pushed global stocks from initial depths Corona Virus Crash in March 2020 to record heights, with growth companies and tech giants taking the lead.
Some investors chose to see the recent weakness as a buying opportunity, but Corrigan noted that confidence in the upside may be misplaced given the state of the overall economy.
In a note on Friday, he noted that since a large portion of the developing equity holders who have performed well so far this year have been using debt capital, they may “swept others when the tide finally begins to turn.”
“People always say the market goes down because of taking profits – it’s about realizing a loss. The guy who sells at the top sells to the next two guys, who realizes he won’t hold up, who sells to the next players and if there are any,” he said in an interview with Squawk Box Europe” on CNBC on Friday, “Of those who have been borrowed, we’re in trouble.”
“And if they are losing a lot of money in a market, which may be somewhat marginal to the real thing, there is another old expression – pull flowers to water the weeds. You sell the other thing to pay margin calls or to try to reshape our finances, so that it spreads. Obviously, we’re at that point right now.”
Despite the risk-off sentiment that has prevailed recently, the S&P 500 is still 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 point.
“Even people who are desperately trying to convince themselves that somewhere down there must be value now just because the asking price is lower, may still be deluding themselves,” he said.
With shortages and escalating costs of “essential items of life” like energy and food, which are putting pressure on household incomes around the world, Corrigan emphasized that consumer focus has shifted from companies whose stocks have enjoyed the most post-Covid recovery.
“We have energy issues, we have issues with food, we have issues with all the basics of life. Is this a time when you worry about spending $2000 to buy a bike to get rid of in your house? Well, obviously not and that’s why peloton He’s been crushed.”
“But how many other types of businesses like those are now somewhat superfluous to the basic problems of existence that we first encountered perhaps two generations ago?”
Peloton shares are down nearly 60% since the start of the year.
Short arguments deteriorate
Other speculative assets, such as CryptocurrencyAnd as crashed Where growth concerns replace inflation fears as the primary fear for investors, while bonds and the dollar – Traditional safe havens – rebounded.
In a research note on Friday, Barclays Head of European Equity Strategy Emmanuel Kao said arguments based on the typical acronyms that keep equity investors — such as TINA (there is no alternative), BTD (buy dip) and FOMO (fear of missing out) — have been challenged by the exacerbation of the growth policy trade-off.
Central bank policy and rhetoric have been a major driver of daily market moves in recent months as investors look to assess the speed and severity with which policy makers will tighten in order to curb hyperinflation.
Having adopted an unprecedentedly loose monetary policy to support economies during the pandemic, central banks now face the difficult task of dismantling that stimulus amid a new barrage of threats to growth.
Cao argued, “Without an incentive to ease recession anxiety, this may continue, but the panic button has not been pressed yet. While highly speculative assets have collapsed, we see little evidence of retail investors (retail investors) abandoning stocks.”
Federal Reserve president Jerome Powell Thursday acknowledged that The US central bank cannot guarantee a “soft landing” of the economyIn terms of containing inflation without causing a recession.
However, Corrigan does not expect this bull market confidence from retail investors to pay off.
“Regarding the notion that inflation (i.e., price hikes) will soon subside significantly, that still seems far-fetched although, no doubt, every slight easing will be seized as a ‘buying opportunity”,” he said in a note on Friday.
“The market could become a meat grinder for wretched hope.”
“Explorer. Unapologetic entrepreneur. Alcohol fanatic. Certified writer. Wannabe tv evangelist. Twitter fanatic. Student. Web scholar. Travel buff.”