Market Musings 280522:
Reasons to be cheerful 1-2-3

Is it time to load up on stocks at last?

Summary:

  • Bear market rally, or a real stock market rally?
  • Are we facing a global recession?
  • Reasons to be cheerful: 1 - lots of recession indicators NOT flashing red
  • Reasons to be cheerful: 2 - Inflation expectations, US dollar finally calming down
  • Reasons to be cheerful: 3 - the pressing need for investment should boost growth
  • Stock market sectors looking more optimistic - not just oil & gas and mining, but banks too
  • European stock market volatility, credit spreads begin to fall
  • Idea of the week: Global Healthcare, PCGH Polar Capital Global Healthcare Trust

This week’s Podcast - Our answers to client questions

Our answers to client questions (link)

  • During a recent interactive client webinar, Edmund Shing and Guy Ertz answered topical questions
  • They also discussed the bank’s investment themes for 2022.

Just a bear market rally, or real stock rally?

Remember, even during the long bear markets of 2007-09, 2000-03 and the Japanese bear market in the early 1990s, there were several moments when stock markets rebounded by over 10%. Before markets subsequently began to fall once again to new lows.

With this in mind, we have to ask ourselves: is the 7% rise in the US S&P 500 and Nasdaq indices and the 4% rise in the Euro STOXX 50 over the last week the beginning of a sustainable stock market recovery, or just one of these bear market rallies that could soon run out of steam?

4 double-digit bear market rallies 2007-09 as the US stock market dropped 50%

Nhu1rSx5YK_Ub_RsBYI_92yjynxiOxyqcZ4_PrEVnhzyLcV9ScoaqcukLi8hVGvQg_erRfhYVF1IJRklw4QAFdSncRZINaFiB7tpP-ua9F_ACYpxNs7kfJxKzLjd7BGVBfKyFlc_TAttEDBQDw

Source: investing.com

One factor supporting the likelihood of at least a sustained rebound in stock markets is the depressed state of retail investor sentiment - who have by and large suffered heavily since mid-2021 from the slump in stock markets. Note how the number of bullish investors in the weekly AAII retail investor sentiment survey recently slumped to its lowest level since 1990.

In the past, this AAII survey has been a good contrarian indicator - when very low as today, future 6-month stock market returns have been solidly positive.

Number of AAII retail investor bulls at lowest since 1990

5NvNyDK5YWR7J5twccFhehnNbgeytQ6NSY7-ap6cjW3j-vzoTUG4cUKGfm-UK8qJbGkGbutrKOP9SOwe4d-rEmfL84NrqhRXghmKCXD3OlkKqmfnK74qKC32rb6CcMeNL-MXcByVg6l90LUlKw

Source: Bloomberg

In particular, retail investors have suffered huge losses in former technology stock darlings such as the…

Unlock the rest of this article with a 14 day trial

Already have an account?
Login here