Incredible but true, the best time to re-enter the market could be right now. Rising inflation, an ongoing war and an economy that is at times slowing down do not scare us especially if we observe a repricing trend underway in many sectors (which could and should be long-term). This is highlighted by an analysis by Carlo De Luca, Head of Asset Management at Gamma Capital Markets.
“Although it is undeniable that the markets have become difficult to read, if we think with still bowls and net of emotion, perhaps we can stop the trap of the cat (market) playing with the mouse (us) – begins De Luca – Let’s start from the ratings. Have we really entered a bearish phase? If we look at the indicators provided by technical analysis, the answer is no. Despite the losses recorded so far, the two most important indices to identify the direction of the trend (Nasdaq and S & P500) have not yet broken down their long-term supports (placed at 11,200 / 11,000 for the first and 3500/3400 for the second) and they may have entered (the S&P not yet technically) in a lateral correction movement. We are not sure, so we will have to wait for the response in the next few days based on what the indicators that calculate the levels will tell us according to the strength with which the upward or downward movements occur. In this type of market, which is extremely technical, in fact, it is the algorithms that decide if and when to violate a buy or sell level (as in this case), perhaps even in the absence of negative news (or even in the presence of positive news) with the only purpose of testing those levels “.
“Therefore, at this moment, I find it wrong to think about the short term (guided by the” machines “) while we should keep our eyes high on the long term by returning to reflect on the basis of financial statements and fundamentals, which, on closer inspection, tell us another story – continues the manager of Gamma Capital Markets – If it is true that in the last quarterly we have had many companies apparently in distress, going to sift through the items of the income statement, it is easy to see how American managers, in a very prudent way, have taken advantage of this phase of confusion to do some budget cleaning. Triggering a further sale on the stock market. Seen from this angle, it is clear that the devil is not as ugly as he is portrayed. On the contrary. These slips have allowed the Price Earning of the two benchmarks to return to the average of the last five years. Therefore, these valuations are not only not expensive but have caused a healthy “repricing” of many sectors (FAANG, semiconductors, robotics, AI, Cybersecurity) which will remain interesting for the next few years as they are linked to growth stories and megatrends that not only will they not be significantly impacted by the ongoing economic stagnation, but dealing at cheaper valuations, would certainly be buy on the dip “.
Buy everything back then? Not really. “At this point – explains De Luca – it should be clear to everyone that in Europe there are far fewer themes of investment than in the United States and the fact that energy and finance are taking the lion’s share in the Old Continent does not mean that they represent long-term investment histories (usually they are included in the portfolio for the remuneration given by dividends). Personally, I am not even so convinced of the goodness of the rotation from Growth to Value because I believe that after the repricing it will be the stocks linked to the megatrends that will perform better. This could therefore be a good time to rejoin Microsoft Apple Alphabet Netflix NVDA. Moving it to different latitudes, the same goes for Chinese tech stocks that have lost the most like Alibaba, Tencent. In recent years, the stock market has not followed micro or macroeconomics: due to the demographic and technological disruption, there are variables that lead the market from one excess to another “.
Who gets it? Who does “Buy and Hold” or who is greedy when everyone else is afraid and afraid when others are greedy. “In Europe – concludes the expert – we are positive on the luxury conglomerates (Kering, LVMH, Pernod Ricard, Campari). Finally, last but not least, it must be borne in mind that in November there are Mid-Term elections in the US and that, if he wants to win, President Biden must present himself to the Americans with markets recovering and inflation falling. And how does inflation go down? Bringing the markets down. In fact, US consumption slows down when the stock market falls. This explains the harshest words of Biden heard in recent days and the verbal “threats” to Russia and China which, in accordance with the Fed’s bullish intentions, are strengthening the dollar and “exporting” inflation while for Americans it becomes cheaper buy goods priced in their currency such as commodities, for example (In principle, any commodity priced in dollars if the dollar strengthens tends to depreciate). If all this negativity tends to polarize on the markets, American demand will fall and inflation with it, thus creating the conditions for the Fed to correct the game and give the trumpets a new breath. With a probable pre-election rally in October. This script, however, has not yet been staged and it is not certain that it will be the film that we will see in the autumn if, for example, the umpteenth Black Swan should make its appearance capable of causing the indexes to collapse under the supports of which we said at the beginning. The picture is weak, the central banks’ paraphernalia is exhausted and new ammunition is being loaded. It should be noted that the stock / bond correlations have reversed in recent days (shares down, Treasuries up with a 10-year yield that fell from 3 to 2.7%) “.