Spooky Season Started Early

Spooky Season Started Early
Daniel Johnston

over 1 year ago6 mins

  • Your outlook on everything from the global economy to markets to company profits are all at new lows.

  • That probably has a lot to do with the war in Europe, inflation, and a looming recession, which you all cited as the biggest market risks right now.

  • But since calling the market bottom is tough, now might be the time to start thinking about getting in to the market at discounted levels.

Your outlook on everything from the global economy to markets to company profits are all at new lows.

That probably has a lot to do with the war in Europe, inflation, and a looming recession, which you all cited as the biggest market risks right now.

But since calling the market bottom is tough, now might be the time to start thinking about getting in to the market at discounted levels.

Mentioned in story

You rounded off the last quarter by telling us how you’re feeling about the markets and global economy in our seventh Casual Investor Survey. And you made one thing clear: you’re just about as pessimistic as you’ve ever been since we first started running this survey.

How are Finimizers feeling about the global economy?

Net proportion of respondents saying inflation, economic growth, or company profits will be higher in 12 months.
Net proportion of respondents saying inflation, economic growth, or company profits will be higher in 12 months.

Putting it bluntly, not so good. Our last survey marked the first time that more of you thought the economy would wind up in a worse state in a year than a better one. But turns out it wasn’t the last time: that gloomy trend was consolidated this time around, with an even bigger net 26% of you expecting the worst (note that we use “net” percentages – i.e. the difference between the percentages of positive and negative responses – so we can compare one survey against another). On top of that, it prolongs the trend of deteriorating sentiment toward the economy that Finimizers have been feeling since the middle of last year. And given that the economy’s direction and company profits tend to move in lockstep (just check out the red and green lines in the graph above), it’s no surprise you were pretty pessimistic about company profits too.

Here’s a bit of lighter reading though: more of you now expect inflation to come down, with a net 38% – the highest ever reading – of you predicting that consumer price growth will be lower in 12 months. That strengthening conviction makes sense: major central banks are getting even more aggressive with their interest rate hikes, which should put a dent in demand and, in turn, help put record price rises on ice.

How are Finimizers feeling about stocks and crypto?

Net proportion of respondents saying stocks and bitcoin will be higher in 12 months.
Net proportion of respondents saying stocks and bitcoin will be higher in 12 months.

You seem to have a similarly bearish outlook on markets too. Just look at bitcoin: this time last year it was sitting pretty as the most popular trade of surveyed Finimizers, but now more of you – a net 9% to be precise – believe the OG crypto will be down this time next year, a first in this survey’s history. It doesn’t take a rocket scientist to realize why: those rate rises we mentioned only lower the appetite for riskier assets like crypto, and that’s a big reason why bitcoin’s price has tumbled 60% this year, leaving it 70% below its 2021 highs. And while your outlook for stocks isn’t quite as negative, it’s still felt the chill from the dropoff in optimism about the economy as a whole.

What have Finimizers seen investors buying?

We asked you how much risk you’re taking on while investing, and more of you answered “less than usual” for the first time since we started running this survey. That trend was clear in what you’re seeing other investors flock to these days too, with a clear “flight to quality” dynamic starting to play out. Case in point: cash has stormed the rankings of most-crowded investments to steal second place, only missing out on the top spot by 2% of the vote. That comes as data out last week showed the S&P 500 has now notched its longest streak of quarterly losses since the financial crisis in 2008, so savvy Finimizers might just be holding cash while waiting for the market to settle and nabbing a bargain. Just be aware that sitting on cash for too long can be a big risk in itself, since you could miss out on any eventual recovery – not to mention the damage inflation will do on the real value of that cash over time.

Responses to “Which assets do you see most investors buying at the moment?”
Responses to “Which assets do you see most investors buying at the moment?”

That’s not to say you’re only backing cash: bonds have become increasingly popular too, and more of you are wisely picking up assets like real estate and gold – which typically hold their value during times of high inflation – to help weather inflation’s storm.

What risks do Finimizers see on the horizon?

Finimizers see three key threats standing head and shoulders above the rest, with war, inflation, and recession garnering the most votes for the biggest risks for markets right now. War and inflation have stayed front and center for a couple of our surveys now, but recession really climbed up the ranks over the last quarter with over 25% – almost double as many from June’s survey – citing it as a worry this time around. That’s no big surprise: the US has entered a so-called “technical recession” since our last survey, and many economists estimate the UK and Europe is hurtling toward one too – if they’re not already in one, that is.

Responses to “What’s the biggest risk for markets at the moment?”
Responses to “What’s the biggest risk for markets at the moment?”

What’s the opportunity here?

The survey shows there’s a lot of fear out there right now, and for good reason. The world’s central banks ramping up their interest rate hikes – a bid to get inflation in check – means there’s a decent chance this dip is far from over. In fact, analysts predict there’s still more downsides to come – 13%, says Morgan Stanley – for the S&P 500, and that investor capitulation – the sharp selloff that often helps the market finally bottom out – is still some way away.

Here’s the thing though: no one will actually be able to tell when that time hits, so it’s important to zoom out and get some perspective. Hindsight’s a wonderful thing, after all, and reviewing previous downturns (like 2008 and 2020) shows there were actually plenty of bargains to be found during the dips, even if you weren’t one of the lucky few who managed to buy in at what was later declared as the “bottom”. On that basis then, there could be some real opportunities for you long-term investors out there right now. You might want to use dollar-cost averaging – investing a predefined amount at fixed intervals – to make the most of discounted prices and to make sure you don’t miss out whether markets rise or fall. It might also be worth creating a watchlist of investments (like sector indexes or single stocks for instance) you’re interested in: that way you can get your research in now to make sure you’re backing the right horse, then choose whether to start scaling in now or wait until they hit your target price. In short, you’ll be ready to pull the trigger as soon as the right opportunities rear their heads.

For those of you who want to stay on the safer side for now, you might want to look into companies that customers tend to buy from no matter what. The obvious ones are consumer staples and utilities, sure, but don’t underestimate the power of strong individual brands like Apple. And if you’re looking for more ways to stop you sitting on cash for too long, hedges like inflation-linked bonds (TIPS), commodities, real estate, and traditional safe havens like gold could be worth some serious consideration.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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