Market Musings 240922: Start looking for quality at a deep discount

Daydreams of Market 240922:

Start looking for quality at a deep discount

Where has the market been too aggressive in its blind selling?

Summary:

  1. Is a sense of panic in the financial markets in the air?
  2. Opposite value to be found because the proverbial baby is thrown out with the bathwater
  3. Be selective, look for quality growth companies at a discount
  4. Value also in some discounted real estate investment trusts for income seekers
  5. Don’t be in a rush, the markets are unlikely to bounce back in a straight line.
  6. Actions that seem like good starting points for further research

It smells like panic in the air

Another week, and more pain for long-suffering equity, credit and bond investors.

In fact, some of the greatest suffering was not confined to the stock market, but rather rarely to the sovereign bond market.

In the wake of the continued strength of the US dollar, combined with the bond market’s nervous reaction to new UK Chancellor of the Exchequer Kwasi Kwarteng’s tax cut mini-budget, UK gilts have come under a real bombardment. The £VGOV Vanguard UK Gilt ETF is rated a 4 out of 7 risk, yet it has lost 28% in 2022 to date, much worse than, say, the FTSE 100 stock index.

The VGOV UK Gilt ETF -28% on 2022 (so far)

Source: tradingview.com

Frankly, this week felt a lot of investor panic, with even once-resilient segments of the stock market, such as the oil and gas sector, taking as much bath as elsewhere.

Second, the put/call ratio for US equities has reached its highest level since March 2020 (the depths of the stock market crash triggered by the COVID lockdown). Investors buy call options when they are bullish to profit from the stock market. But conversely, they buy put options when they want to protect their stock portfolios or position themselves for a falling stock market.

A high put/call ratio then indicates that investors are very bearish in the stock market, as they buy far more puts than calls.

The most bearish put/call ratio in US stocks since March 2020

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Source: tradingview.com

As such, markets are rapidly pricing in current/coming recessions in Europe and elsewhere, as higher interest rates and high energy prices weigh on economic growth.

Institutional investors have been heavy sellers of European equities for most of 2022,

Investors have been big sellers of the EU…

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