Inside the Mind of Investors - Dec 2022 - Edison Group
While investors’ adrenaline levels are still running high, an increasing number are finding strategies to move beyond the bear market. Effective investor relations rely on having deep insight into what investors are thinking. So every month Edison brings you Inside the Mind of Investors.
The causes of recent stock market rallies are explained easily enough. Investors seek predictability and, having understood the picture of the change sooner than most, they’ve enjoyed watching everyone else catch up and come to terms with our chastened futures.
Few of us deny that the era of cheap money is over. that growth is likely to be relatively muted in the decade(s) ahead, that inflation is more permanent than transitory and that, as the world deglobalises, China is ex-growth.
With policy and business decisions now being made on those assumptions, the same assumptions driving equity portfolio decisions, the political and investment worlds are in closer alignment, making policy decisions more predictable.
The real question, therefore, is why do investors’ adrenal glands remain so active, keeping them in a state of high alert? US bears still outweigh bulls by a margin of almost 16% amid warnings that current market performance is a bear bounce.
These fears of vulnerability are fuelled by concerns that inflation’s ‘new normal’ may run at 4–5%, that energy prices will continue to hit hard and that, despite what the world has thrown at investors during 2022, even worse could be lurking unseen, just around the corner.
And yet overall confidence continues to grow, particularly in the US. The Federal Reserve will scale back the pace of aggressive interest rate hikes, earnings have been surpassing consensus estimates and major indices have been posting gains.
Given their reputation for less volatility – and the continued reduced risk appetite – value stocks have performed better than growth equities. Small and mid-caps have also done comparatively well, having been harder hit earlier in the year, while energy continues to outperform.
And the list of buying triggers does not end there.
Some investors are on the hunt for consolidators. When capital is scarce, private competitors fall prey more easily to hungry public companies – which often retain better access to funds.
Businesses generating cash flow and paying dividends are also in fashion, providing opportunities for investors to reinvest in smaller companies with growth potential.
Others are pivoting towards capital-intensive sectors which have the potential to improve environmental performance and pick up stronger demand from ESG-minded funds.
Which narrative fits you best in this not-so-bear market? If you’d like to talk things through for your specific situation, don’t hesitate to give us a call.
Published 13 December, 2022