GUEST BLOG. I am optimistic, but cautious.
So let’s start with the many reasons to be optimistic at the start of 2022. First, after a year 2022 that could hardly have been more difficult for the world’s population, it’s a safe bet that the conditions of the global pandemic will subside during the year. With the resolution of COVID-19, expect the economy to rebound strongly and the job market to gradually recover. The pandemic has certainly postponed strong demand that has been pent up by the pandemic and could explode as soon as sanitary conditions become safe. Restaurants, airlines, hotels, museums will undoubtedly do business in gold.
Among other positive factors, interest rates remain historically very low, which has not only contributed to a less severe economic slowdown than could have been expected at the start of the pandemic, but should also contribute to a strong recovery. Also, Western governments have clearly demonstrated that they are ready to do everything to revive the economy by injecting gigantic sums of money into their economy to help the smallest businesses and the poorest of their populations to better weather the crisis. . Additionally, the Federal Reserve has made it clear that it will not raise rates until the job market has fully recovered from the pandemic, which could take several quarters.
I am therefore convinced that we will not only get through this health crisis, but that our economy will be able to rebound quickly in the months to come.
At the same time, I can’t help being cautious about the stock markets.
It seems to me that several black clouds camouflage a growing part of our stock market blue sky. Among these, I would note in the first place the meteoric rise of speculative activity on the part of investors. This can be seen in the record number of brokerage accounts that have been opened since March 2022 by individuals. We see it in the record number of initial public offerings in North America and in particular in the disconcerting attraction of “SPAC” (” Special Purpose Acquisition Corporation “), these shell companies to which investors write checks blank to make an acquisition. We can also see it in the enthusiasm for technology companies, which had another exceptional year on the stock market, after several years of superior returns.
The long-term investor should not be overly concerned about the current situation. On the other hand, in my opinion, he should make sure to avoid titles that are very popular and whose ratings defy reason. On the contrary, he should ensure that his companies remain reasonably valued, in good financial health and that his portfolio is always well diversified.
It is impossible to predict when a fashionable segment of the market will lose its appeal to other investors. It is quite possible that the craze for tech stocks will continue in 2022 and that they will continue to propel stock indices higher. However, I believe that it is only a matter of time before these securities, whose valuations seem excessive to me, deflate. Meanwhile, a little cash on the sidelines also seems like a good idea to me in order to be able to take advantage of any opportunity that may arise.
When the market excesses fade, the prudent investor should not be too affected; it should even be able to take advantage of the pendulum swinging back towards “value” stocks. In the meantime, patience and caution should be the watchwords.