STOCK MARKET COMPASS is a heading that discusses a recent or upcoming event that marked or will mark the evolution of stock markets. The text will explain the event and relate its impact on the stock market based on the expert analysis. This analysis can be basic and technical.
(Illustration: Camille Charbonneau)
“Be afraid when others are greedy and greedy when others are afraid,” Warren Buffett said. Many investors are familiar with this saying that is associated with the most popular of them. But if it is easy to understand his logic, it is not very easy to follow it. And the moment we are going through describes it very well.
Since the beginning of stock market trading this year, markets have been plagued by high volatility. Many indices have fallen in what we call a correction, a decrease of more than 10% since the last peak. These indices, as well as many of the large companies, easily continue their moving averages, leaving no sign of where the bottom is.
Result: Despite Buffett’s famous phrase, it’s not easy for investors like you and me to place purchase orders, even if prices are now, or at least seem to be, very attractive.
Therefore, it is important, first of all, to rationalize the matter, explains Vincent Fournier, portfolio manager at Claret Gestion de placements. He first recalled that every year, there was a moment when the market was in sharp decline. “These declines are 13% on average,” he said. Some of these corrections capture more of investors ’imagination than others, such as in 2018 and 2020.
Each of these corrections occurs for different reasons. “What we are currently experiencing is due to inflation, interest rate hikes and business stockouts,” he said.
(Source: Eikon Refinitiv)
Secular bull market
It’s unclear if it started in 2009 as a result of the financial crisis or a few years later, but experts agree that stock markets are currently in a period of long-term upside (secular bull market or secular bull market). “And these periods typically last between 20 and 25 years, Vincent Fournier explains. Furthermore, when corrections inevitably happen in secular bull markets, they are violent, but short -lived. .
Last fall, according to some experts, it became increasingly inevitable that a correction would take place. “It had the impact of selling securities related to growth sectors to take refuge in cautious securities and let the storm pass,” explained Cimon Plante, portfolio manager, National Bank Financial.
And in January, many other sectors however wanted to be safer to follow, such as American banks whose quarterly results were disappointing, as well as stocks whose stock market analysis suddenly appeared to be too stretched.
These recessions are now opening the door to great investment opportunities, according to Mr. Plante. “The software and Internet sectors are good examples of this,” he said. Currently, parts of these companies are trading in bulk very close to their historical averages, while their business models are certainly more promising than in the past, he believes.
Obviously when it comes to large tech stocks, investors are in the grip of fear. Money allocations of managers in the technology sector have dropped since 2008, Cimon Plante believes. “It looks like the sector unhappy personhe says.
For his part, Vincent Fournier believes it is the right time to start deploying capital for investors with new liquidity or those who have remained on the sideline in recent months who fear this correction.