Our view of the Equity market over the next few years calls for a choppy market that will reward Active Managers and penalize the Buy & Hold crowd.
This forthcoming “choppy” market will not be a market where most Technology stocks move up or down, or where certain sectors move in unison. Rather, we are referring to a market where conflicting macro signals (fiscal policy, monetary policy, currency movements, geopolitical risks etc.), will cause a variety of investor opinions – more so than today. A clear consensus view will struggle to emerge. It will pay to be active in this market. It will pay to know which companies to invest in rather than piling into a particular sector. It will pay to know when to trade in and out of certain stocks as company-specific, industry-specific and macro factors change causing sharp, pronounced moves in specific equities.
- Company and Industry fundamentals will matter more than they do today in terms of their influence on the investment decision-making process and stock prices.
- The ability to conduct in-depth Company due diligence and have this sit at the core of the investment decision-making process will be an in-demand skill for Asset Managers to develop or acquire.
- Fiscal and Monetary Policy will continue to matter, but the two-headed Government beast will not carry the same weight as it does today (Fiscal and Monetary Policy seemed to account for 99% of market moves during the depths of COVID, and perhaps that figure is down to 90% today). We expect the mix of Fiscal and Monetary Policy vs. Fundamentals to share a 50% weighting in terms of their market influence.
- While we expect Fiscal and Monetary Policy to continue to intervene in markets with their heavy hands, fiscal and monetary policy can’t afford to print Trillions of new Dollars and new Debt nor take the Fed Funds Rate to zero to “stimulate” the economy and run the risk of exacerbating inflation.