FNArena’s Weekly Insights – February 07 2022

In this week’s Weekly Insights:

-February Results: Macro, Traps And Opportunities
-Conviction Calls
-Index Changes

By Rudi Filapek-Vandyck, Editor FNArena

February Results: Macro, Traps And Opportunities

Contrary to popular belief, bear market periods are actually quite common in global markets.

Pre-GFC we all liked to think there would not be a repeat anytime soon of the Nasdaq meltdown post March-2000, but, depending on the chosen definition, it’s not too difficult to identify late 2007-March 2009, 2011-mid-2012, May 2015-February 2016, late 2018 and the first quarter of 2020 as bear market periods with similar base characteristics.

Common observations for all these periods involve heavy volatility (at times into never-before-witnessed-extremities), indiscriminate and forced selling (not always possible to distinguish the two), with an underlying tendency to end up at a lower price point, irrespective of multiple big rallies to the upside, triggered by short-covering or otherwise.

Overall sentiment usually turns very dark as investors worry about a total collapse or the-end-of-the-world-as-we-know-it. Very scary price charts make their appearance and comparisons with the 1930s or 1987 are drawn.

This time around the worry is that central bankers have left it too long to adjust their ultra-accommodative policies and that inflation, in combination with slowing growth in fragile economies, might wreck global equities and domestic properties.

It is my observation these periods of great market uncertainty are a process that needs to run its course. And, contrary to what some forecasters might pretend, the end outcome is never this early set in stone already. History also suggests worst case scenarios have a habit of, ultimately, not materialising, or only on very rare occasions, like 1929, 1987, 2000 and 2007.

None of this means investors should not take heed of the fact that risks are present; these risks are tangible and they can, potentially, cause great distress and severe portfolio damage. My own biggest concern for a while has been that central bankers lose their confidence and start tightening too firmly and at too rapid a pace while most economies around the world are decelerating into a mid-cycle slow-down.

We can but speculate what such a scenario would do to markets, but……….

Click to read the Full Report