After a year of steady and seemingly endless growth, something seems to have jammed in the stock market rally mechanism.
For a year they went on autopilot. Extraordinarily expansive fiscal and monetary policies, an end of the pandemic within reach and a very strong economic recovery, have created the conditions for a regular, inexorable and seemingly endless rise. Something, however, as he states Alessandro Fugnoli, Strategist in Cairo, seems to have jammed in the upside mechanism. Fiscal and monetary policies have become a little more uncertain, Biden’s fiscal plan encounters some obstacles in Congress, the Fed starts talking about reducing the purchase of securities, the so-called “tapering” and the ECB is also starting to discuss when to end the one-off purchases program that expires in March 2022. Global growth shows air pockets here and there, while inflation reaches levels not seen for some time. There Delta variant of the virus finally casts a shadow over the summer reopening and the upcoming cold season.
Two mistakes to avoid
In this scenario, the investor must know how to position his portfolio and Fugnoli invites you to keep a couple of considerations in mind to avoid evaluation errors.
The first is to think that nothing has changed and that we should continue to buy even small losses. No, something has changed as central banks and markets focus on 2022 and try to understand what the world will look like after the current flare-up of economic growth and inflation is over. There are doubts and uncertainties and it is legitimate to think that we will navigate on sight, without autopilot and with fewer safety nets. The second mistake is to think that the ground on which we rest is particularly fragile and that the artificial nature of the recovery is about to bring out all its weaknesses, causing a heavy fall in the stock markets. No, that’s not true either. The recovery is solid, and 2022 in broad terms is already set as a year of growth of 3-4% in America and 2-3% in Europe, while inflation next year will be 2-3%. in America and close to 2% in Europe.
In concrete terms, those who invest must prepare for a slowdown in the trend rate of the share rise and a volatility also favored by seasonal factors. However, a prolonged and marked turnaround should not be expected. Those who have a good equity exposure will therefore have to avoid the temptation to increase it too much on correction, so as not to run the risk of getting scared and selling if the correction is deeper. Only this, nothing more. The rise is not over, concludes Fugnoli, but to enjoy the fruits well, it will be necessary avoid becoming greedy.