Wall Street seems desperate for a sell off

Wall Street seems absolutely desperate for a sell off, but will we get one?

Bloomberg is full of articles with someone from Goldman Sachs or JP Morgan telling us all that stocks will collapse, AGAIN.

Are they just talking their book and trying to justify their jobs after failing to catch the sell off last year? We had a fairly big drop in stocks which has brought most major indices back into line with, or close to, their long term averages.

In fact, many are still just too cheap. The FTSE in the UK and the DAX in Germany being the two stand out undervalued indices.

It’s possible these analysts are only referring to US stocks; the Americans have been known to confuse the US with ‘The World’. It may well be that US stocks have a little further to fall before picking up again, but Wall Street analysts are starting to sound a little desperate.

The UK has seen outflows from UK funds in 10 of the last 12 months, and last year UK investors withdrew a total of £25.7bn; yet the FTSE ended up the year flat.

The FTSE has been too cheap for too long. It is still slightly below where we would expect it to be, but the recent rally up to 7900 isn’t far off what we said it would be during the middle of last year.

We do now expect it to go even higher over the next 6 months, although it will require a little help from the rest of the world to do that. The investment will come, but our political infighting and poor decision making has hurt us. Having said that, the FTSE was one of the only indices in the world not to have recorded large losses last year.

The MSCI All countries world index was down nearly 20%; the FTSE was flat.

Wall Street blamed the start of year rally on the average American for buying shares again and then everyone else getting FOMO. Maybe, but I like it when people have a little optimism and look to increase their portfolios during a selloff. It’s good for the world, but it doesn’t seem to be good for the grumpy fund managers on Wall Street who have yet to buy back in.

If the selloff doesn’t come, and we see disinflation pick up, then they have a lot of stocks to buy and the markets could have a great second half to the year.

This may seem a long way off, but trading short term is a little like tossing a coin.

The market might go up tomorrow, or it might go down, who knows? Don’t try and guess from one day to the next. However, if we look at where the market will end the year, then it is easier to focus on what to do now.

Ignore the noise inbetween.

The reason for the recent drop is that Inflation isn’t coming down as fast as we’d all hoped – although we’re only looking at one month’s worth of data supporting this.

Things can change very quickly. The reasons for it being high are starting to dissipate, so why isn’t it coming down? Energy prices have fallen significantly, China has reopened, so why isn’t inflation dropping?

I guess the simple answer is, if people are paying the current prices, why drop them? Prices always go up faster than they come down. Some sectors are more competitive than others, but ultimately if you own a business and everyone is happy to pay more then keep on selling at inflated prices.

Wages have increased significantly. If people are being paid more, they will pay more for goods. If companies are paying staff more, then they need to charge more to make that back.

In September to November 2022, the finance and business services sector saw a wage growth rate of 7.6%, the construction sector wasn’t far behind with 6.3% .

In the three months to December 2022, regular pay grew by 6.7%.

This is inflationary, despite what the unions might say. Part of the problem is the constant reminder that ‘real wage growth’ takes inflation into account and is therefore negative. The solution to higher inflation from a workers perspective, is higher wages.

The consequence: prices increase as people are prepared to pay more. You can see how this snowball is hard to slow. The only way to do it, is to take the Japanese approach and simply don’t pay more.

For the whole of 2022, Japan's nominal wages grew 2.1%, which was their biggest annual hike since 1991. Last year Japanese inflation averaged around 2.5%. Coincidence? No.

The numbers are linked. Fastest way to bring down inflation, freeze wages.

However, that isn’t something that any elected government can afford to do because they won’t get elected again. Therefore, they do the only thing they can do, agree to more pay and fuel the already hot inflation.



The TPP Market Bias At The Moment:

Most of the long or flat strategies are now starting to buy into the market again after selling out at recent highs. Our tracker strategies continue to track and many of our active strategies have a 'slight sell bias' currently.

In the short term, we expect more ups and downs as always, and if our traders can catch movements on both sides of the market- it will add to our yearly gains. However, over the mid-term, there could be a good rally heading our way a little later in the year.

For traders it’s important not to listen to all the noise and focus on the data. The market rarely does what you’d expect from one day to the next, but thinking longer term makes decisions much easier. Common sense also tends to prevail.

All of our traders will be confident of generating a positive return in Q1 regardless of whether markets go up or down.

After averaging 40% per annum over the last 3 years since formation, the pressure is on and expectations are high.

In 2023- A rising market, or one that trades in ranges would both be very good climates for our traders. Although most investments stagnate in ranging markets, on our platform our traders have a habit of buying at short term lows, and taking profit at short term highs. Therefore, whether the market stagnates within a tight range, or rises moving forward- we hope our traders and trading teams take advantage for our clientele.


If you have an underperforming portfolio elsewhere, or are sitting in cash waiting for an entry point- contact our team for a FREE consultation. Learn how to build a portfolio that aims to yield 2-4 x market benchmark performance per annum.

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