After my projection of a correction that I made in June where I indicated that the S P500 could fall 10 to 25% in the United States summer period, there was finally a decrease of only 6% from September 2nd to 30th (within the "summer"). The strength of the S&P500 has been colossal. However, that does not contradict with any of the arguments that I have pointed out regarding that the US stock market is at one of the highest levels of valuation and speculation in history (and if something has happened in these months, it is that those arguments have become even more extremes), nor the low expected returns in that index (which will be negative on average in the next 10 years - considering 2021!).
For my part, I have been trading in several topics / sectors, or individual stocks from the value or growth segments, in various countries where I have posted some ideas in "The Speculator's Picks" (where, as an example, one of them is 34% up since its publication date of September 28th). As I have pointed out, the fact that I think that the "average" (index like the S&P500 or ACWI), is very expensive, does not mean that there aren´t very cheap stocks or sectors. The market is always full of opportunities and part of those ideas that I see are the ones that I share in "The Speculator's Picks".
As I said in the previous video that I shared last week (a thousand apologies for the length of the video but I tried to make it didactic in the face of the comments of several of you; the next one will be 3 to 5 minutes maximum), one of the biggest concerns of the market today is inflation that already marks 4.5 to 6% per year (depending on the measurement tool used), and where the Fed is running a serious risk of continuing to lose credibility (which exacerbates the inflation effect on expectations). In this regard, former NY Fed Chairman Bill Dudley pointed out this week that the Fed is "behind the curve" (in line with my opinion), and that the Fed will have to raise rates much faster and harder than what the market has built into its expectations.
Dudley points out that he sees the Fed's target rate at 3 to 4% (I think for 2023/2024)
Another issue that I think will be headline again and will have an effect on expectations and market volatility is the "Debt Ceiling" issue in the US, where Yellen stated this week that the cash of the Treasury would (again), run out in mid-December, which places the risk of non-payment of the US sovereign debt again on the table. The market will probably react complacently to the news since it will assume that "agreement has always been reached at the last minute", and will deduce that this time it will be the same. I agree with that view, however, I think it is worth keeping this subject in mind especially considering the effect it had on the markets in September (which was when the "mini" correction of 6% that I mentioned above in the S&P500 occurred) .
China and the effect of its intervention / prohibition measures on industries
On emerging markets, as I write these lines, I observed a synchronized fall in currencies in Asia, commodities and stocks and ETFs from that continent, and particularly from China (I do not want to draw conclusions from that, but I comment on it because it pulled my attention the number of alerts that "sounded" in a period of minutes. I believe that China presents some opportunities and, in view of the slowdown that this economy has had, due at least in part to the intervention that the Government has made in various industries, and to the regulatory changes that it has made for several semesters (such as in the real estate market), the Asian giant will probably choose to "calm" these measures in the near future. In recent days, it has given some signs of relaxation.
Within this "relaxation" of China´s intervention, I highlight the "punishment" that China imposed on Australia 1 year ago when it stopped buying coal, which forced China to buy this mineral at a much higher cost and to consume the inventories (in part due to a global demand boom due caused by fiscal and monetary measures taken because of Covid), which led to the price of coal rising more than 300% in 11 months, which, considering the composition of China's energy matrix in the use of coal (about 50% is coal), it led to a shortage of this mineral as energy prices in China soar. This prompted China to take measures to divert coal from industries intensive in the use of coal towards energy production. One such industry was the steel sector. As they went out of coal, the steelmakers had to reduce their production and this affected the demand for iron ore (as well as the freight rates of the "dry bulk" segment), and therefore the iron ore price decreased by 60% in 4 months, which has affected the stocks of the sector.
Chile and potential entry window
As I mentioned in my article "Possible entry window to Chilean equities on the horizon" on October 12, it is likely that we are close to or very close to a good entry window for stocks in Chile. Since the publication of the article, the Chilean Stock Market (measured by "IPSA"), had a rally of around 10% in 1 month. In recent days, there has been a hard correction, which is still a reflection of the risk that the market perceives regarding the outcome of the presidential elections of this Sunday, but there is a probability that a "floor" will occur very soon. I will probably post some idea about this on "The Specualator's Picks" in the next few days / weeks, so I suggest you stay tuned and subscribe.
Thank you for reading.
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