3-Min. Weekly Market Sentiment Wrap-Up — May 9th

For the past month or so, I’ve stated my bearish view on markets. It seems that the sentiment has permeated in other investors’ mind. There’s a lot of bearishness, desperation and the beginning of capitulation.

I tend to be contrarian but, for now, I will stay aligned to my initial view and the rest of the market. There’s probably some further way down to go.

Naturally, this depends on your time horizon but, for the long-term investors, there’s no need to rush or try to make a quick buck on a bounce. I’ve been and will continue to average in as risk assets get discounted.

I will share some bullish factors later down but the immediate focus remains rising rates weighing on valuations, demand, and the attractiveness of growth assets relative to presumably safer assets. Bonds are nearing or are at positive real rates. So the question is whether you want to stay in the safety of cash and bonds while markets digest all of this, or if you want to take a gamble. Looking at the USD, it seems investors are sticking with the former, for now.

The concern is that the pain will endure until the US Fed changes course and pauses the rate hikes or even reverses it.

It doesn’t seem that this will happen any time soon. We might need to wait three to six months to digest all of this and have prices reflect the true impact.

It’s worth noting that GDP in the US and in other countries lacks panache -as expected- and so it’s hard to see reasons to be invested.

On the bullish side and the reason why I’ve started to average in:

  • I still believe in the long-term upside of equities and primarily tech stocks, in the next three, five, ten, fifteen years. That might seem like a crazy long outlook but missing a buying opportunity because “I’m waiting to time/catch the absolute bottom” is a recipe for unoptimised portfolio. It’s that simple: over the past 50 or 100 years, you were better off being invested than not, especially as a diversified holder.
  • While the new rate environment and the macro impact of the Russo-Ukrainian war or the Covid situation in Shanghai have changed valuation model, risk assets are down significantly. Enough that one would think there’s an opportunity to allocate at least some of your investment budget -and maybe keep some for further downside
  • I love to hear Warren Buffett and the Berkshire Hathaway team mention that they have purchased more stocks in the past quarter than in any quarter going back to 2008–2009. Value investors seem to think there are discounted valuation for the right stocks and are willing to allocate massive amounts of money.
  • More focused on crypto, the Pantera Capital newsletter -of course pitching for their blockchain fund- pointed out that they’re raising more money than initially expected, and that they see that dynamic across other funds in the space. This might take one or two years to be invested but ultimately represents a wall of money that will push the crypto market cap higher.
  • Last but not least, it’s so different this cycle in — I remember 2017–2018 when people were saying Bitcoin was going to die and would eventually going to zero… You’re not hearing this anymore. This highlights a subtle but fundamental shift in perception. People know of crypto, understand the basic value, and will be willing to buy if discounted enough (instead of scurrying away).

My conclusion is similar to previous weeks. I believe in further downside but I believe this is a beautiful opportunity to allocate to assets you have faith in and see upside in.

March 2020 was probably the best time of my investment life, I had been hoping for a brutal volatility event and had buy-orders waiting on the way down. When it came, while everybody else was in pain, I felt like Christmas had come early.

We’re in a similar -albeit longer lasting- period of pullback. If you have capital and a long enough outlook, enjoy it.

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Passionate about financial markets, long-term investments, the occasional short-term trade and disruptive technologies.

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Justin d’Anethan

Justin d’Anethan

Passionate about financial markets, long-term investments, the occasional short-term trade and disruptive technologies.

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