Has #volatility peaked ?

Has volatility peaked ? Difficult to say, what’s certain is that over the past 4 weeks the US markets have wiped out all the gains of the last 3 years, basically since Trump’s presidency started. Some say that coronavirus has only been the trigger of the neutralisation of a rally on steroids caused by liquidity injection and tax breaks, ie not of true #earnings growth. While more #liquidity is coming, it would appear that monetary policy alone is not going to be a sufficient cure for the market and that fiscal policy is also needed as well as an effective way to put an end to this biological crisis.

Intro over. So what can investors do in these difficult times ? Last week we talked about raising cash and inverse funds. The situation has not changed as volatility remains high although it has decreased from about 80 to about 60 this past week.

In the meantime, it helps looking at what the new earnings are saying. $ACN for example, a company on my watchlist, has beat expectations early this week but halved their revenue forecast. This company traditionally releases earning much earlier than most S&P companies, which are not due for a few more weeks.

Another interesting observation. The Norwegian krona has tanked and lost about 20% compared to the Euro in the past 20 days: that is a massive drop for a currency of a country with AAA rating ! #Norway has been seriously hit by the virus, is not part of the EU which prevents them from accessing the benefits of QE and is heavily reliant on $OIL which is down >50% over the past month. Not looking good for Norway, but is their currency a possible future investment opportunity when the situation stabilises ?

This week 3 of our long positions have hit the stop loss limit, namely $SYF, $RR.L and $OXY . It is very important not to let your losses run beyond 7 to 20%, depending on your risk profile and whether they are dividend payers or not, so it is advisable to insert suitable stop losses, thankfully this is function that works well on many trading platforms. I continue to watch $SYF closely as I think there will be a great buying opportunity in the not too distant future, whereas I think $RR.L will be under prolonged pressure due to their reliance from the aviation industry and $OXY won’t recover until $OIL rebounds unless they are taken over.

As always, be patient and invest responsibly !

Happy weekend to all.

#Valuation drives the #market: which strategy for 2020 ?

“Stocks follow earnings”, says the old adage: even in this past 2019 which has seen great returns in multiple indices, it seems to describe the market behaviour well. If one compares the S&P500 earnings with the S&P500 growth, the correlation is quite clear and an indication that this growth is not unjustified.

Photo 05-01-2020, 15.49.38

On the flipside, can the same be said about the earnings themselves ? We commented before on the fact that earnings have partly been fueled by liquidity.

The PEG ratio of the S&P500 is much greater than 1 (with 1 meaning a future growth perfectly priced in the current stock value).

Photo 27-12-2019, 11.35.17

While earnings are the expected to grow also in 2020, a value investor will have to pick the right stocks to beat the market as the current P/E already appears to price in future earnings.

Even more now it is important to be a stock-picker. A recent example of a seemingly undervalued stock has been provided here.

 

It’s the #liquidity, baby

The correlation between the balance sheet and the stock market is clear, here expressed in terms of global #liquidity superimposed to the #S&P500.

Both the #ECB and the #FED have been injecting liquidity into the market which has resulted in the appreciation of #assets, rather than or only marginally in actual growth.

This is indeed the main argument against these “helicopter money” initiatives – that they result in #stock #buybacks rather than new investments aimed at growing the real economy.

How long can it last for ?

#Brystol-Myers Squibb predicts stellar #growth for 2020

Something must be stirring at #Brystol-Myers Squibb $BMY considering the projected #earnings growth for the next year. This #value company had done very little over the past years compared to the stock market until this past half of 2019. Going forward it predicts a significant #EPS #growth which makes its #PEG ratio <1. Overall it looks very promising considering it is also a generous #dividend payer.

The #US journey towards #energy independence in 2 graphs | #ActiveInvesting