See all the previous BBB Monthly Recaps here.
Feb 2023 Performance +1.1% vs +1.2% benchmark (FTSE All-Share Index)
2023 YTD Performance +4.4% vs 5.6% benchmark
2022 Performance +12.0% vs -3.4%
2021 Performance +21.6% vs +14.6%
The Macro Environment
Is the stock market now a casino, and the participants are all goldfishes instead of people? It feels that way at the moment, what with the huge intraday swings. It used to be that a drop or rise of 2% in a day was huge news, yet now it feels pretty common. The market is gyrating with the release of every small bit of information, instead of smoothing out towards the bigger picture. This shouldn’t affect long term investors one bit; except that I tend to only trade a few days a month – what if I am unlucky and get those days wrong? Should I start to break up my trades over, say, 3 days to spread out the volatility risk?
Bonds & shares now seem completely detached from one another; despite the 10-year treasury going above 4%, and the 10-year gilts near 4%, I see the FTSE250 and the AIM100 PE at about the same levels as early 2019; but back then we had super low interest rates.
And the outlook is gloomy too; the median EPS for the FTSE250 is expected to decline over the next 6-12 months, when comparing the TTM PE to the Forecast PE for the index.
Why are investors then willing to accept declining earnings? Or even a dividend yield (3.6%-4%) that is lower than the 4% you can easily get with a 1-year fixed savings account that is 100% government backed? I fear that investor perceptions are still stuck in “the only place to be is shares” mode from the last 10 years, without considering other parts of the investing universe like bonds or cash savings.
I am patiently, but getting irritated, waiting for the stock market to catch up to the reality of higher rates for longer. Which will crack first, the bond market or the stock market? My money is on the latter, given the huge amount of fleeting speculative money sloshing around (see my opening paragraph) compared to the bond market.
Interestingly, if you look at the AIM100 P/E TTM and Forecast, brokers are expecting an increase in EPS, which is…
