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All that Matters for Investors is Macro

  • High correlation between stocks inter has meant that investors are all focusing on a single data point, whether central banks will tip the economy over into a recession. 
  • Day traders are struggling to cope with the extreme swings in volatility and instead investors are likely to keep key indices rangebound until the macroeconomic situation becomes clearer.

Forget about technical analysis for a moment and ignore earnings, unprecedented day-to-day volatility in equity markets is forcing investors of every stripe to take a closer look at macroeconomics, even if they never had before.

Never before has obsession with a single input, the economy, driven measures of correlation among individual stocks to levels not seen since the coronavirus crash.

While a rising tide indeed lifts all boats, a receding one grounds them just as well and investors are fretting that the U.S. Federal Reserve is the wave-making machine, resulting in intraday swings of 1% or more in the benchmark S&P 500 for the longest streak in a decade.

Burned by the volatility where stocks can swing violently in either direction both inter and intraday, many day traders have simply sat out altogether, while professional investors are taking longer-term positions, betting on their ability to divine the future.

Stocks have been moving in sync across the board and while theoretically this creates stock-picking opportunities, when good companies fall as much as bad, sifting the wheat from the chaff is not for the faint-hearted.

At its core, the main concern is that policymakers tighten monetary conditions too much, to tip the economy into a recession, which means even the star performers at the moment will fall.

And higher interest rates means that investors are less willing to pay a premium for high-growth stocks that have enjoyed decades of loose conditions and ample liquidity.

The only sector that is doing well is energy, with the surging price of oil, but that also creates another set of concerns as on the even of the last financial crisis, oil prices were surging as well and investors buying in now may be catching the sector at its peak, as was the case in 2008.

Against this backdrop of breakneck whiplash-inducing uncertainty, investors see a range-bound market, with many investors appearing to be prepared to sell on near-term rallies, and become buyers again when prices dip slightly – few appear prepared to bet on a durable direction.

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© Copyright of Novum Global Consultancy Pte Ltd {2020, 2021}. All rights reserved.

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