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Rookie Investor
Posted: 22 January 2022 21:41:36(UTC)
#1779

Joined: 09/12/2020(UTC)
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mark tman;204638 wrote:
what is everyone's thoughts at the moment, does this have a lot further to go or is just another 2020 style blip?

I see a popular technical analyst say the S&P cost drop more than 50 percent from here


As always in these situations, there never is a 100% certainty which way things go, not even close. But my views are as follows (I can easily be very wrong):

We are in a very similar period to end of 2018 where the FED was looking to tighten into a weak economy as indicated by the yield curve. The yield curve has generally risen due to inflation but it has also flattened (contrary to what happened this time last year when it steepened due to bullish economic prospects from the re-opening).

The problem this time is (compared to 2018):
1) valuations are quite a bit higher
2) there is quite a bit more (political) pressure to contain inflation given the high numbers which could remain so until later this year - not that the FED can do anything about it, how can base rate changes improve supply chain related issues???

So there is certainly the set up for a fairly large drop resulting in a bear market over most of the year, especially since given what I have said above, value may not necessarily do well at all (how can it if the economy is slowing?). Growth might actually do relatively better, or indeed better in absolute terms which would result in a less steeper decline.

Much will depend on the reaction function of the central banks, whether the FED "pivots" in good time (after realising they are making the same mistake as in 2018), indications of inflation slowing sooner than later etc etc. And because of all these variables and uncertainty attached (particularly the timing), its very difficult to be confident enough to make calls on the stock market performance.

As always, who the hell knows!
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Elland Road on 23/01/2022(UTC)
NoMoreKickingCans
Posted: 22 January 2022 22:10:54(UTC)
#1782

Joined: 26/02/2012(UTC)
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Quote:
value may not necessarily do well at all (how can it if the economy is slowing?)


Isnt that the point. Value doesn’t have to ‘do well’ because it has no such assumptions built into its valuation. Something ex growth and paying a 5 or 6% dividend is perhaps more attractive than cash or growth on a PE of 25 that might halve if inflation chokes off the growth ?

And are you guys just talking US equities ? Although the US market impacts others there are likely to be different situations in different geographies. It may be time to look beyond the US.
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King Lodos on 22/01/2022(UTC), Mr GL on 22/01/2022(UTC), Guest on 23/01/2022(UTC)
Rookie Investor
Posted: 22 January 2022 22:21:07(UTC)
#1786

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NoMoreKickingCans;204653 wrote:
Quote:
value may not necessarily do well at all (how can it if the economy is slowing?)


Isnt that the point. Value doesn’t have to ‘do well’ because it has no such assumptions built into its valuation. Something ex growth and paying a 5 or 6% dividend is perhaps more attractive than cash or growth on a PE of 25 that might halve if inflation chokes off the growth ?

And are you guys just talking US equities ? Although the US market impacts others there are likely to be different situations in different geographies. It may be time to look beyond the US.


Not necessarily. Value are generally sensitive to economic conditions and if the economic conditions don't improve materially, then why would value do better (in an absolute sense as well as relative to growth)? Growth stocks usually (but not in all cases) are not nearly as sensitive to economic conditions.

Inflation might be running at 6% but long term yields are only at levels around 2 years ago. 2 years ago (just before the pandemic) we weren't exactly running hot in terms of inflation or economic growth.

So what has changed since the pandemic to make you think inflation will be structurally higher for some time to come? Or economic growth higher than we have had since the GFC?

Growth stocks may have de-rated, but that is what market do. Froth comes off from time to time. It doesn't necessarily mean this de-rating will be sustained.
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King Lodos
Posted: 22 January 2022 22:26:35(UTC)
#1783

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NoMoreKickingCans;204653 wrote:
Quote:
value may not necessarily do well at all (how can it if the economy is slowing?)


Isnt that the point. Value doesn’t have to ‘do well’ because it has no such assumptions built into its valuation. Something ex growth and paying a 5 or 6% dividend is perhaps more attractive than cash or growth on a PE of 25 that might halve if inflation chokes off the growth ?

And are you guys just talking US equities ? Although the US market impacts others there are likely to be different situations in different geographies. It may be time to look beyond the US.


In terms of Value vs Growth, in a slowdown, the things that kept Growth prices high have to be revised down – and then obviously the relative attraction of value/dividend stocks on higher earnings yields goes up. (doesn't mean value stocks necessarily do well, but growth stocks may do quite poorly – which is how it's played out so far this year, discounting the move in the dollar.)

Value also tends to include sectors that benefit from things getting more expensive .. So if the cost of energy goes up, the energy sector's profit margins go up .. And if rates go up, banks make more on the carry trade, so their earnings go up
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NoMoreKickingCans on 23/01/2022(UTC), Guest on 23/01/2022(UTC)
Mr GL
Posted: 22 January 2022 23:36:39(UTC)
#1784

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King Lodos;204657 wrote:
NoMoreKickingCans;204653 wrote:
Quote:
value may not necessarily do well at all (how can it if the economy is slowing?)


Isnt that the point. Value doesn’t have to ‘do well’ because it has no such assumptions built into its valuation. Something ex growth and paying a 5 or 6% dividend is perhaps more attractive than cash or growth on a PE of 25 that might halve if inflation chokes off the growth ?

And are you guys just talking US equities ? Although the US market impacts others there are likely to be different situations in different geographies. It may be time to look beyond the US.


In terms of Value vs Growth, in a slowdown, the things that kept Growth prices high have to be revised down – and then obviously the relative attraction of value/dividend stocks on higher earnings yields goes up. (doesn't mean value stocks necessarily do well, but growth stocks may do quite poorly – which is how it's played out so far this year, discounting the move in the dollar.)

Value also tends to include sectors that benefit from things getting more expensive .. So if the cost of energy goes up, the energy sector's profit margins go up .. And if rates go up, banks make more on the carry trade, so their earnings go up



sounds like one needs to buy an index chocked full of banks and energy stocks - oh wait - what is this index that no one has wanted to buy for ht last few years... banks... energy... commodities... consumer staples... and all packaged into a nice index that yields 5.4% and has this as its top holdings... https://www.ishares.com/...-uk-dividend-ucits-etf. yum yum
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NoMoreKickingCans on 23/01/2022(UTC), Tyrion Lannister on 23/01/2022(UTC), Guest on 23/01/2022(UTC)
King Lodos
Posted: 23 January 2022 00:11:46(UTC)
#1785

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Mr GL;204660 wrote:
King Lodos;204657 wrote:
NoMoreKickingCans;204653 wrote:
Quote:
value may not necessarily do well at all (how can it if the economy is slowing?)


Isnt that the point. Value doesn’t have to ‘do well’ because it has no such assumptions built into its valuation. Something ex growth and paying a 5 or 6% dividend is perhaps more attractive than cash or growth on a PE of 25 that might halve if inflation chokes off the growth ?

And are you guys just talking US equities ? Although the US market impacts others there are likely to be different situations in different geographies. It may be time to look beyond the US.


In terms of Value vs Growth, in a slowdown, the things that kept Growth prices high have to be revised down – and then obviously the relative attraction of value/dividend stocks on higher earnings yields goes up. (doesn't mean value stocks necessarily do well, but growth stocks may do quite poorly – which is how it's played out so far this year, discounting the move in the dollar.)

Value also tends to include sectors that benefit from things getting more expensive .. So if the cost of energy goes up, the energy sector's profit margins go up .. And if rates go up, banks make more on the carry trade, so their earnings go up



sounds like one needs to buy an index chocked full of banks and energy stocks - oh wait - what is this index that no one has wanted to buy for ht last few years... banks... energy... commodities... consumer staples... and all packaged into a nice index that yields 5.4% and has this as its top holdings... https://www.ishares.com/...-uk-dividend-ucits-etf. yum yum


Yes – it will the inverse of everything that's been doing well .. But it's not quite the way I like to do it.

The problem is, inflation can surprise on the up or downside, so trying to trade around it can be brutal .. The dividend ETF could be a good way to offset growth/market exposure, but as a trade – knowing I might want to be all-in on Value – I'd choose things a little more market-like .. So over the year, T. Rowe Value's level with the div ETF for now, FTSE 100's on a similar trajectory:

https://i.imgur.com/XE5evmh.png

But over 5 years, it's not past performance, but that they're a little less concentrated on the high risk stuff – so would tend to be easier to rotate in and out of .. knowing that 3-6 months of things going the other way, and we would be rotating out again

https://i.imgur.com/NGNGKLs.png
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NoMoreKickingCans on 23/01/2022(UTC), Guest on 23/01/2022(UTC), North Star on 23/01/2022(UTC)
NoMoreKickingCans
Posted: 23 January 2022 01:01:00(UTC)
#1787

Joined: 26/02/2012(UTC)
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It is quite interesting to look at that 1 year chart. Those stocks have been rising fairly steadily for a year. It perhaps implies a trend which no-one was looking at much because growth stocks were still popular and holding up (apart from Peleton/zoom).
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Guest on 23/01/2022(UTC), King Lodos on 23/01/2022(UTC), J-san on 23/01/2022(UTC)
King Lodos
Posted: 23 January 2022 02:51:06(UTC)
#1788

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NoMoreKickingCans;204664 wrote:
It is quite interesting to look at that 1 year chart. Those stocks have been rising fairly steadily for a year. It perhaps implies a trend which no-one was looking at much because growth stocks were still popular and holding up (apart from Peleton/zoom).


Selling growth funds now means there's a big problem in someone's strategy .. It's much more the reason I suggest passive investing than the funds themselves .. I was selling out of BG LT Global Growth about when this chart begins.

This arbitrary 6 month rule I recommend would've worked here, because very quickly, your growth fund would've been lagging the US index – which I'd say means rotate into beta straight away .. (people who are holding onto their BG funds and topping up: fine .. I can't really advise on that, other than commit fully or not at all .. For me, it doesn't appeal, as 10 years underperformance isn't out the realms of possibility.)

So I'd say over the year, you've been fine in Value, but just as fine with regular market exposure .. The nice thing with how close they've tracked is, again, very easy to smoothly reposition without getting badly caught out, but I do think ppl should read about trading before trying it (all the Market Wizards books, for a start)

https://i.imgur.com/yzK2bW1.png
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4 users thanked King Lodos for this post.
Maggie Chase on 23/01/2022(UTC), NoMoreKickingCans on 23/01/2022(UTC), Mir Pat on 23/01/2022(UTC), Jesse M on 23/01/2022(UTC)
Aminatidi
Posted: 23 January 2022 08:12:54(UTC)
#1789

Joined: 29/01/2018(UTC)
Posts: 5,866
So as much as we're all guessing does anyone have any predictions for tomorrow and the rest of the week?
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John Strom III
Posted: 23 January 2022 08:45:45(UTC)
#1791

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Aminatidi;204670 wrote:
So as much as we're all guessing does anyone have any predictions for tomorrow and the rest of the week?


I'm surprised "experts" and "scientists" haven't modelled the future of the stock market, although if they did it would almost certainly be a doom-laden prediction. But only if the government wants it to be. And would probably be wrong. So on that basis, I would suggest carrying on as normal. For those who are investing for the long term, using pound-cost averaging, and periodically rotating their portfolios into the desired asset allocations reflecting their appetite for risk. Preferably keeping costs low, and avoiding fiddling about with things too much.
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Keith Cobby on 23/01/2022(UTC), waterland on 23/01/2022(UTC), Martina on 23/01/2022(UTC)
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