Market Musings 140123:
Climbing the wall of worry

Stocks rise further in the face of still-bearish sentiment

Weekly Podcast - Our Investment Strategy for January 2023

In this podcast Edmund Shing unveils his investment strategy for January 2023.

1. Just how bad was 2022 for investors?

2. Why might any global recession be more modest than feared?

3. What is happening to energy prices?

4. Why do we recommend Equities?

Summary

  1. Stocks rise further in the face of still-bearish sentiment

  2. World ex US leads, with the FTSE 100 and CAC 40 indices close to all-time highs

  3. Banks a surprising leading sector, given recession risks

  4. Banks’ sector earnings momentum remains robust on the back of strong recent results

  5. Retail banks are helped by rising short- and long-term interest rates

  6. Risks to banks are evident: deep recessions can result in a surge in bad debt costs, hurting both profits and balance sheets

  7. For now, UK and European Banks remain cheaper than their long-term average, with rising profitability and earnings trends.

  8. 6%+ sector dividend yields are also attractive, as long as banks can maintain or grow these dividends over time.

Stocks, Gold rise but sentiment still poor

So far so good, another positive week for stocks after a very poor 2022. For now, the consensus remains for a weak first half of this year before a potentially better second half.

Reflecting this cautious consensus, both retail and professional investor sentiment remains somewhat depressed, judging by the low levels on both the AAII bull-bear survey and also the Institutional Investor sentiment survey.

We might then characterise this rally as a short-covering rally. The general feeling remains that it will likely only be a short-lived bear market rally, with the dominant downward market trend to resume relatively soon on the back of approaching economic recession and a fall in 2023 corporate profits.

Still-bearish US professional investor sentiment

CBnC3mgFItQu5TT0JllRP4oRDDp9aeugGEopRoisoctA6-i-1GL-pup3ER2JRIhuXhvclJ4UiT-buS6iJMPtkcUiWZcOfHY5RGDhwywL05WZ9sXipwhwO3ZxuklSbevumvYwGC0k3ob46pYhGiTHGMvMNRpilw8fwwYNsKOaKjB9yBSlld7AlhPw18QNlQ

Source: NAAIM

The World ex US continues to lead the way

In Europe, leading markets are the UK (FTSE 100) and France (CAC-40). Both are approaching not only multi-year highs, but in fact all-time highs, after a long period of relative underperformance versus more dynamic stock markets such as the…

Unlock the rest of this article with a 14 day trial

Unlock with Email
Unlock with Google

Already have an account?
Login here