What should investors prioritize in the “worst environment” for financial assets? – The Average Joe


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    What should investors prioritize in the “worst environment” for financial assets?


    May 3, 2022

    S&P 500

    2022 hasn’t been easy on investor portfolios. Instead of chasing returns, investors could fare better by shifting their strategies…

    What’s the big deal? “You can’t think of a worse environment than where we are right now for financial assets,” — according to Paul Tudor Jones (CNBC). His advice: Capital preservation should be investors’ priority.

    Several analysts seem to agree — forecasting darker days for the S&P 500 (BBG):

    • Strategas Research Partners expects the S&P 500 to fall to the 3500-3700 range.
    • Morgan Stanley’s Chief Investment Officer, Mike Wilson, thinks the S&P 500 could fall to 3,460.

    According to analysts (BBG), the markets still have further room to fall if a recession is on the table:

    • JC O’Hara of MKM Partners doesn’t see the markets oversold to make a “high conviction ‘buy’ call” — and thinks stocks are still overvalued based on recession level valuations.
    • A DataTrek Research co-founder thinks the S&P 500 would be cheap if it falls another 20% and doesn’t think global equities have bottomed.

    Bull case: But eventually, that pessimism could turn into opportunities. Robert Armstrong laid out several bull cases in his recent article. Here are two:

    1/ Sentiment can’t get worse. Per last week’s American Association of Individual Investors survey, 59% say they were bearish over the next 6 months — the highest level since 2009.

    Per Armstrong, the last time sentiment was this bad, it was a “great moment to buy stocks.”

    2/ Inflation backs off, and the Fed follows.

    Raising rates by 0.25% instead of 0.50% would help ease recession fears. But to do that, the market will either need to crash — or supply and labor shortages ease.

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