I’m extremely excited to share the new perspectives of my research from this past week and to provide an in-depth breakdown of market dynamics for you. In this market update, I’ll be sharing 19 stocks in an extremely hot sector that I think will continue to provide strong upside in an uncertain market, in addition to the macro forces that are driving these trends. Let’s dive in…
The whirlwind of market volatility continues to put pressure on financial markets & create choppy conditions for investors. It’s been an extremely exciting three months if we reflect on the major events and fears that have impacted financial markets. In November 2021, The Federal Reserve officially announced and began the tapering of their asset purchases, which I covered here. With the expectation for interest rates to rise, most tech & growth stocks got hammered. For example, $ARKK had a monthly return of -13.2% in November.
At the end of November, South African scientists flagged the new omicron variant of COVID. With limited information about the virulence & contagiousness of this variant, investors maintained their “risk-off” approach. I wrote about market sentiment from omicron on 11/27, which can be read here. In December, with omicron spreading extremely fast, there were serious questions about how consumers and business activity would be impacted. At the time, the “unknown” was enough to spook markets, leading to more choppiness and volatility. Meanwhile yields & interest rates continued to move higher in response to rising inflation data and the ongoing shift in monetary policy. Risk assets, particularly tech/growth stocks, continued to get crushed. $ARKK fell -11.3% in the month of December, declining -40% from the all-time highs in February 2021 through the end of the year.
Additionally, December saw a drastic increase in geopolitical tensions in Eastern Asia/Western Europe between Russia and Ukraine. In my “Investment Outlook for 2022”, I outlined several core risks and the key questions facing the U.S. economy/financial market in 2022, highlighting geopolitical tensions in that region specifically:
Screenshot from “Investment Outlook for 2022”, published on 1/2/2022
Over the past six weeks, the global tension around Russia/Ukraine has continued to increase substantially. On Friday, comments from U.S. intelligence made it appear that a conflict was imminent. At 1:28pm ET, American journalist Nick Schifrin posted the following on Twitter:
Whether the validity or magnitude of these claims & concerns are valid, markets were spooked by the potential for a global conflict. Upon the release of this news, the S&P 500 fell -1.4% into the end of the trading session.
The point is this… In addition to consistent concerns around inflation & rising interest rates, markets have now been impacted by two important downside catalysts: heightened uncertainty around COVID (which is now subsiding) and geopolitical conflict on a global scale.
With the stock market hitting ATH’s in late December & early January, the market is also grappling with normal fears around investor psychology. Considering that the S&P 500 gained +120% from March 23, 2020 through January 4, 2022, investors are reasonably questioning the sustainability of the trend. Potentially afraid of a healthy correction, market participants are attempting to outsmart the market by securing capital gains, putting downward pressure amidst rising rates, inflation fears, COVID, and geopolitical concerns.
Just this morning, I received a text message from a long-time holder in Microsoft stock asking, “Do you think I should sell my Microsoft and pay capital gains tax to save on the dip that is coming with the Fed rate hikes?”
In my opinion, this is the common sentiment shared amongst most retail investors right now, attempting to time market-moving events to protect & optimize their wealth. This sentiment and concern is 100% justified, particularly considering the whirlwind of macro forces impacting markets. I don’t have a crystal ball and I certainly don’t know the magnitude with which markets will respond to downside catalysts; however, I will continue to share the key data and charts impacting my view on equity markets.
