There are some large capital flows happening worldwide at the moment, and investors need to understand what is going on and how it will affect their portfolios.
Growth is coming off the boil rapidly in Europe, and investors have voted with their feet as they run towards sharply rising rates in the US.
We are seeing a flight to quality with US 10-year bonds yielding above 3% looking like a good option in a world that is coming apart at the seams.
The US dollar has broken out of a seven-year range and looks like it has much further to run. That has serious repercussions for commodities and gold in particular.
The euro looks dangerous as it has a sniff at parity with the US dollar, and it may not stop there as it plummets to levels not seen for two decades.
We are now in a market where the elephants are starting to get involved, which can lead to moves that will make your hair stand on end.
The long-term trend for equities is down, and I show you in today’s video how far they need to fall to equate to the falls in the noughties.
But within the doom and gloom, there are usually long periods where markets rally in the hope that the worst is over. We may be entering such a phase, but a trader that buys this market has to have their eyes firmly on the exits if things turn to custard again.
My line in the sand is the low of the correction, which is just 6.5% below current levels in the S&P 500. If prices fall below there, all bets are off, and I am going to buy canned goods and hide in the basement.
But while that level holds, there is the chance we see a slow grind higher as markets climb the wall of worry. Tax-loss selling has pushed many stocks down to silly levels, so a reprieve from the chaos could see a tradeable bounce.
Healthcare is the sector that seems to be attracting the dollars. They have the tailwind of the COVID recovery seeing their revenues bounce, and are seen as a defensive sector, so they should outperform going forward.
I show you a couple of stocks worth checking out in the ‘Closing Bell’ video above.
Regards,
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Murray Dawes,
Editor, Money Weekend
