For the large part of 2022, investors have been witnessing red. But last week proved to be extraordinarily bad. The Consumer Price Index rose by 0.1% from July, indicating that inflation was still rising, despite the US Fed raising interest rates. The news had a shattering impact on the stock market, losing $1 trillion, its worst one-day loss since June 2020.
In fact, if we are to believe the news, then expect hikes up to 4.25%-4.5% by the end of this year to combat inflation, higher than what was projected in June (3.25%-3.5%). What this means for the average consumer is higher interest rates and rising borrowing costs for other loan products, like real estate, vehicles and even credit cards. As things stand, mortgage rates have touched beyond 6%.
And it is just not the US that has raised hikes. Norway, Switzerland, UAE, Philippines, etc., have also increased their rates. The US dollar growing stronger has only weakened the currencies of BRIC (Brazil, Russia, India and China) nations. The Indian Rupee hit a record low of Rs 81.93 against the US dollar, and so did the Chinese Yuan, which hit its lowest since 2008’s recession. And, of course, the Russia-Ukraine conflict rages on, leaving most European nations in short supply of natural gas.
So at times like this, how should you as an investor behave – buy more stocks and earn big or pull everything out and avoid more losses?
The simple truth is that the tightening financial conditions could be in the news throughout the year. However, there remains good news coming from corporate earnings and, again, likely to dominate the news cycle. So for investors that are seeing red and looking to sell, price action trading are the best capture the opportunities in the market.
Areas of Opportunity
Despite a tumultuous 2022, the market can still offer opportunities to invest. Here are some to keep an eye on.
US Value Stocks: There are two reasons to remain confident in value stocks. The first, during recessions, they tend to be very cheap and reach their normal levels after recessions. The second is for firms like Morgan Stanley that see the economy moving to a period of permanent higher inflation. In this scenario, inflation-sensitive stocks are likely to outperform.
Europe: Regularly, you are likely to hear strategists asking you to favor European stocks over the US. Simply put, European stocks are cheaper, and on a value bias, they scale higher. And frankly, there are opportunities in some European stocks this year. But, don’t just buy them because they are cheaper; look at their performance and then take a call.
Asia ex-Japan: It’s a region worth looking at. Simply on growth, the region has seen companies doing as well as US companies. Though the region lagged in 2021, it is still a solid alternative for investors to invest in.
Growth/Technology Stocks: Many analysts rightly saw the chase for growth/technology stocks after the COVID-19 lows as a bubble. However, the more established technology stocks never traded to the same frenzied level. Stocks here have underperformed despite impressive earnings, which give investors an immense opportunity to capitalize and invest in large-cap technology stocks that are trading at reasonable levels.
Most central banks are likely to stay focused on combating inflation in the coming weeks, with many investors feeling that the market is likely to be down. This has led to uncertainty in the market, with some analysts and economists predicting an economic crisis could be on the way. However, if you look closely and do your research, there are opportunities to find and make a hefty profit. Remember, in every problem, there is an opportunity.