Thursday, May 19, 2022

This is the end of the bull stream in the US and what should investors do?

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Despite the changing year in which additional blockades and nervousness took place around the Omicron coronavirus variant in the following months, U.S. markets performed well in 2021.

It was the largest stock market to achieve the best results in terms of total revenue, including dividends of more than 30 percent.

The key driver of revenue was strong growth in corporate earnings as companies benefited from the rise of the vaccine and the reopening of the economy.

U.S. markets have lasted a long time, in part because of the Fed’s stimulus program, but now it is aimed at reducing support, which will mainly affect tech stocks.

However, this year began with a sharp sell-off in U.S. stocks, particularly a widespread tech cellophane that saw popular stocks such as Tesla fall more than 10 percent.

Concerns about inflation and its stability, as well as how the Federal Reserve System will respond, could be big on investors ’minds.

The Fed will strengthen its anti-inflation policy

The Fed has recently said it is increasingly concerned about inflation, and according to interest rate futures, the probability of a change in interest rates in March was almost 90 percent.

Goldman Sachs and Deutsche Bank have offered four 0.25 percent increases this year.

In minutes from a meeting released earlier this month, Fed officials said they were considering a quantitative tightening – the abolition of its massive stimulus program – shortly after interest rates rose.

The central bank had already intended to rescind its quantitative easing program, but now it appears to be moving faster in the face of high inflation that threatens markets.

“The Fed has a difficult task at hand – it has used a lot of emergency monetary and fiscal policy tools to beat us and now it has to change some of it without ruining the economy,” said Darius McDermott, Chelsea’s managing director. Financial services.

“We are going through a period of very strong, absolute performance for U.S. stocks, and I don’t think it will happen again this year – but we can still see positive returns. I think those returns are at a more ‘normal’ level.” and hopefully we will see them coming across the spectrum of market capitalization, not just the big tech giants.

Richard Hunter, head of markets at Interactive Investor, notes that securities that are sensitive to interest rates, such as banks, became popular before the reporting season.

Low interest rates for banks reduce lending margins, and uncertain labor markets make it more likely that bad loans will be written off.

Customers who rely on their own funds for financial services are more likely to purchase savings, investment and insurance products.

“While it is highly unlikely that rates will rise to historic levels, there is an improvement in sentiment given that the impending environment should improve prospects for banks in the coming months,” Hunter said.

While companies like Goldman Sachs and JP Morgan saw their share prices rise sharply at the beginning of the year, they began to decline amid sales in the Treasury bond market as investors began to change their portfolios. Tougher policy than the Fed.

Tanking Tesla: Since the beginning of 2022, its share price has fallen by 12.5 percent

Tanking Tesla: Since the beginning of 2022, its share price has fallen by 12.5 percent

Can technology continue to sell?

The strong performance in U.S. markets last year was mainly due to the impact on high-growth technology stocks that benefited from the pandemic.

Five technology stocks – Alphabet, Apple, Microsoft, Facebook and Amazon – account for a quarter of S&P and almost a fifth of its sales.

“These stocks have also benefited from consistently low interest rates, which will increase the cash value of their long-awaited future cash flow today,” said Tom Stevenson, Fidelity Investment Director.

But since the beginning of 2022, Tesla has seen a sharp sell-off in technology stocks, including a 12.5 percent drop in stock prices following a statement from the Federal Reserve.

Ark Invest’s Innovation ETF, seen by some as a good indicator of U.S. technology health, also fell more than 17 percent this year.

Obviously, the current economic background will last for a few weeks, but does this indicate a constant change in U.S. markets?

Growth reserves have certainly borne the brunt of the pressure, but Hunter says, “Interest rates should be relatively low by historical standards, which in turn could give the sector some relief in the future.

“Despite the understandable rotation given the economic background, it may also be fair to say that you are not paying attention to the technology giants, as there are many opportunities for further growth.

Many of them have a dominant and in some cases insurmountable position in their market, and Warren Buffett has something that has a “ditch” around the business, allowing the company to support both prices is a shining example of competitive advantage. and high profit margins. ‘

This is also McDermott’s opinion, which is much higher despite regulatory and tax issues that could make the lives of some technology giants more difficult.

“Could there be another sale? Yes, of course. But then you can add it to the soup.

“It’s hard to see the world becoming less digital, so those with built-in services and products like Alphabet, Amazon and Apple can continue to do well no matter what.”

Google-owned Alphabet was the largest tech campaign to achieve its best performance last year, and although it has declined slightly since the beginning of the year, it remains unequal.

Much of its revenue comes from the Google advertising business, which has proven resilient during the pandemic. Despite the privacy changes, it has improved over other companies like Facebook, the current Meta, and Snap.

Even Apple continues to face disagreements over iPhone sales, and analysts expect revenue to reach $ 118 billion when they report next week.

Experts say that as the earnings season approaches, investors who want to influence these U.S. behemoths may consider keeping both growth and cyclical stocks.

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