Indices
In the semi-festive session on Friday, November 28, Black Friday, we experienced the biggest falls in Europe and the US so far this year due to the uncertainty regarding the new Omicron variant. It must be taken into account that a lower trading volume also contributes to more exaggerated movements.
The key level to watch that should work as support on the S&P is the 4,500 points, in which the average of 50 and 100 coincide (red and blue line in the lower graph). If respected, the bullish trend would remain intact and would be a sign that the buying pressure to “buy the dips” is still in force.
EUR/USD
It has been a month of very strong gains for the dollar (+1.9% against the euro) due to expectations of a faster rate increase in the US than in the Eurozone.
From a technical point of view, EUR/USD lost the fundamental support of 1.56/1.60 (horizontal green line in the chart below), a level that had not been given since July 2020. Since then, the sale of euro positions has continued to accelerate.
My conclusions
As the graph below shows, we are in a historically very strong time of year for financial markets, accompanied by an American economy that remains solid and continues to return to normal, and Q3 business results that have once again beaten the investor expectations.
Despite this, which seems to have taken a back seat, the market is now more focused on its concerns about the Fed, inflation and Omicron, about which I have my opinion:
- There is no need to fear tapering, the growth of the American economy is showing us that it no longer needs the help of the Fed, in addition to helping to relax inflation. Although there is talk of the beginning of a progressive increase in interest rates in 2022 and 2023, we start from a 0%, so There are years ahead with very low rates, an oasis for companies.
- Regarding inflation: are you going to leave your money in the bank where the only thing you are guaranteed is that you are going to lose purchasing power, or are you going to invest in the stock market and select companies in which to place your money that are capable of growing at a faster than inflation and are publishing profits record? Of course, for this it will be essential to select those that have price power to transfer their higher costs derived from inflation to the sales price of their products or services and therefore, do not see their margins harmed by increasing their income and profits. Although an inflationary environment is complicated for consumers, companies with competitive advantages can benefit since there is greater interest in quality goods or services even if their prices are higher than average. The Stock Market is the best protection against inflation.
- Given the news about the new Omicron variant, it was once again demonstrated that investors overreact first and then analyze. Although COVID is still among us, economies and people are much more prepared than in March 2020 to fight it thanks to treatments and vaccines. For this reason, I do not believe that countries will make long-lasting radical decisions that will once again endanger world economies, which is why global recovery should be maintained despite specific “breaks.”
Overall, I consider that we have all the elements on the table to have an end to the year at historic highs again. I predict that December and January will be very strong months for the stock markets and I would expect a possible correction in February 2022.
Dan Benbunan
Portfolio Manager
Very interesting. Could be
enriching, specifically studying the Spanish market and its most prominent values and sectors