The second quarter commenced with solid demand for the primary stock markets, validating the short-term upward trend, reconfirmed in the aftermath of the two modest corrections at the end of January and the end of February, whose lows now represent support for their respective indices.
If we consider that in March the general economic indicators had signaled a temporary setback in the economic recovery that began gradually at the end of 2020, the pause for reflection of the indices seemed justified. It is worth noting that this pause in the positive progression of the stock markets coincided with a marked sector rotation that saw technology stocks, and growth stocks in general, give way to cyclical stocks, which have expanded on the gains already made since last October. Instead, in most recent weeks we have seen the opposite phenomenon, demonstrating that the indices, in spite of the lateral upward trend, are consolidating within themselves, confirming that we are in the presence of a distributive technical phase. Therefore, the thesis that we could see a correction in prices, more incisive than those seen in the first quarter, remains plausible, and would foretell the aforementioned support levels as an opportunity to add to equity investments.
The reasons that would justify this momentary setback of the indices remain mainly two: the economic trend confirms the forecast of a stronger recovery than estimated starting from the end of the second quarter, so in a few weeks the real economy will present competition with the financial markets for the utilization of the enormous liquidity available worldwide, around 160 trillion dollars, to be allocated to investments and consumption. The second obstacle for a seamless continuation of the current stock market rise is represented by the increase in long-term yields offered by fixed income securities, which in the case of the dollar have tripled compared to last spring, approaching the level of 2% for the ten-year government bond which, if not controlled by the FED, could lead to a repositioning of investors from the stocks to bonds. This increase in consolidated yields is fueled by investors’ conviction that we are close to a traditional inflationary upsurge, while, in reality, we find ourselves in the presence of marked monetary inflation, as evidenced by the enormous upsurge in cryptocurrencies, which given deflation structurally present since 2009, renders a transfer to the real economy unlikely.
More generally, there are no historical precedents of a strong economic recovery accompanied by bullish stock markets, while the enormity of the monetary intervention implemented by the central banks in the last 12 months renders the hypothesis that a new phase of the secular bull market of 2009 began in March 2020 plausible, which could continue until 2022, making the next corrections buying opportunities. From this point of view, the US markets appear more suitable than those of the Europe, notwithstanding a brilliant start to the year that allowed them to fill part of the gap that had been created precisely with the indices across the pond, and the Chinese market is also interesting because investors have recently neglected it, believing that the central bank was oriented in a more restrictive way, while in reality it is a contingent problem linked to the control of the stability of the yuan exchange rate. The attractiveness of the US stock markets, if they were to correct with respect to the current historical high of the S&P 500 index, close to the resistance level of 4175, also lies in the valuation of the dollar which, after the 2020 correction, is in the middle of the recent 1.17 – 1.23 accumulation range with the Euro, waiting to benefit from any moderate correction of the stock markets, which would bring its safe-haven characteristic back to the fore. Regarding the stock markets, the recent correction of cyclical stocks and more generally of all sectors sensitive to the economic cycle, seems to represent a valid investment opportunity.
Nicola Bravetti Fonte dati: Bloomberg
“This report cannot – nor can – be considered a solicitation to invest in financial instruments”