Recession fears are being priced into the market and at a marco level - IHL will be effected. Hence the SP where it is, this won't go away time soon.
Here is an analysis I recently did on the state of this - DYOR.
The wild ride of the markets continues on! With the markets dropping over 5% in the last 5 days. This was on the back of an expected rate rise of 0.75%. We are now expecting rates in the US to peak around 4.5% up from 3.75%.
Recession is looming..
We will start with the markets, as you can see from the ASX200 chart below - we are at critical junction to see if we are in oversold territory. The critical level is 6407 (62 points away), if this level gets broken than we can see the ASX200 dropping another 3-5% but there is a strong chance the market may bounce at these levels and confirm its support.
You are probably asking, if we are going into a recession, then we will breach this level? That may be the case but remember the last time the ASX200 was at these levels, it was pre covid.
In regards to the US markets (S&P 500) , we are at thesame critical junction as the ASX200. It looks like the markets are pricing inthe worse which I think is still very premature. I do believe we will see abounce first as the gap between fears and reality is widening. Reality isn’t asbad what we are starting to fear.
The only time we will see continued selling is if one of thefinancial structures breaks such as the collapse of the emerging markets due toa strengthening US Dollar or Russia going nuclear. This is a very smallprobability and very unlikely but not impossible. Because it’s such a lowprobability, we aren’t stopping our life for it until it actually happens sowhy is this any different with investing?
Can we compare parallels with the GFC or COVID. No, wecan’t! This is because the problem is not unexpected in comparison to thepredecessors. In 2008, no one expected the banks to blow up to the brink ofcollapse (Lehman brothers and Bear Sterns), now they are well capitalised.Covid was more an income problem not a credit problem that was faced in 2008.This was fixed by injecting direct stimulus.
Is this like the tech bust in the 2000s ? Not really! Thisis because revenue or profits were non-existent in 2000s and there were a lotof fraudulent companies that barely had any operations. Technology companiestoday are proper companies which we now use every day and generating real money.
I can understand valuations are coming down due to the factwe have been printing money for the last 15 years and this has propped up assetprices. Inflation is now causing the reverse affect.
At present, I do think we are going into the oversold sideof the markets. Not to say something may break in financial system. This may bedue to the continued selling and because the financial system is extremelyintertwined and complex. I cannot really pinpoint where it will start or if itwill happen at all.
To be honest companies such as Google and Facebook beingsold off is a bit absurd because they are practically saying there will be atotal collapse in advertising revenue. But if you look back at the last googleearnings, it was still extremely strong and yes there might be a slowdown, butI don’t believe it’s as much of a slowdown as people are fearing!
Yes, interest rates are rising, and we don’t know where thetipping point will be. We will continue to experience heightened volatility,but we can’t think of the worse right now.
IHL will be impacted by this as you all know, usually stocks that are returning no $ back to SH's will always get smashed first..
