🎯 Macro Factors and the importance of an optimistic outlook (10 Updates) 👇
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Macro Factors and the importance of an optimistic outlook
(10 Updates) 👇
TIGHTER CREDIT CONDITIONS RAISE THE ODDS OF A HARD LANDING 👇
✔ “While the impact of March’s bank collapses on the real economy will be difficult to quantify, it is fair to assume that they will lead to a further tightening in bank lending standards and lower loan growth.”
✔ “In that context, smaller, riskier and more highly leveraged companies would find it more difficult to access capital.”
✔ “Lending facilities coming up for renewal would be refinanced at higher rates and more stringent covenants.”
✔ “This would likely lead to more loan delinquencies and wider credit spreads compared with government bond yields. Corporate earnings would also become less predictable.”
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STOCK RETURNS ARE HIGHLY CORRELATED WITH EACH OTHER AT PRESENT, DRIVEN BY MACRO FACTORS 👇
✔ “In the past year, as the US Federal Reserve has embarked on one of the most aggressive hiking cycles in history, US and European stocks have been driven by macroeconomic factors more than company-specific risk.”
✔ “Individual stock returns have been highly correlated with each other, driven by common factors, which has made it more difficult for stock pickers to generate alpha and beat their benchmarks.”
✔ “In the past 25 years, higher levels of ‘pairwise’ correlations, or the correlation of returns for one stock against another, have been observed only on three occasions: during the global financial crisis (2008-09), the European sovereign debt crisis (2011- 12) and the COVID-19 pandemic (2020-21).”
THE IMPORTANCE OF AN OPTIMISTIC OUTLOOK 👇
✔ “Being too pessimistic on the outlook for markets, or individual stocks, might be costly.”
✔ “Being prudent and considering risks need not mean being overly cautious and limiting the upside potential for long-term gains.”
✔ “For example, cash provides safety and comfort, and has performed well in the face of much market turbulence over the last year, compared to other asset classes.”
🚨 However, over many years, will it provide adequate returns to preserve and grow wealth versus risk assets?
✔ “History shows this not to have been the case; inflation erodes the value of cash, which is a guaranteed capital loss (assuming insufficient savings rates, and/or strategies, are in place to counter it).”
GLOBAL ECONOMY HIT BY ENERGY-PRICE SHOCK 👇
✔ “The recovering global economy and fears of a supply shock sent oil prices surging in 2022.”
✔ “Whilst crude costs eased back from the $140 a barrel peak at the start of Russia’s invasion of Ukraine in February last year, they are still expected to remain supported by relatively tight supply and demand dynamics for the rest of the year.”
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.