“Segments of the healthcare industry also need to work better than most,” says Andrew Graham, founder and managing partner of Jackson Square Capital, pointing in particular to Eli Lily.
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Today’s investment landscape looks bleak and seems to suffer from many factors, including growth inflationrising interest ratesthe economic downturn in the first quarter and the war in Ukraine which annoyed the already protracted supply chain problems.
Add it all together and it was a horrible year for the stock. Technology Nasdaq fell 13% in April, its worst month since the financial crisis, and lost more than a quarter of its value this year.
However, it is important to keep in mind that what prompted the market crash was not a confluence of the above issues – it was the Federal Reserve. As 2021 drew to a close, the fundamentals were strong enough. Corporate earnings growth remained strong; the labor market, though tense, was healthy and provided jobs; and consumer balances were in good condition.
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However, in early January, politicians began to signal that they would raise rates and restrain their bond-buying program. Since then, the S&P 500 has begun to fall, losing nearly 16% over the next four weeks.
In retrospect, the drawdown should not have surprised anyone. Markets have shrunk by similar amounts in the previous four times when the Fed began repealing policies in 1983, 1994, 2004 and 2015. However, in each case, the stock jumped quickly and reached new highs within 12 months of reaching the bottom.
Of course, this is hardly a significant statistical sample. But this is the pattern we have, and for several reasons, probably this time the story will repeat itself.
For one, bearish sentiment has recently reached a record low, according to a survey compiled by the American Association of Individual Investors. Over the years, when market prospects are so one-sided, this is a good opposite indicator of what will happen the other way around.
Similarly, if institutions – hedge funds, pension funds, etc. – go out, it’s also a signal to rush. Such investors are currently under-invested in stocks, which means that sellers will soon run out of money in the market.
The biggest problem, however, is inflation – it’s just not as bad as most fear.
When the Fed started talking about raising rates earlier this year, the bond market reacted wisely, yields rising slowly. Russia then invaded Ukraine, increasing the chances of rising fuel and food prices, and nerves began to break down. Investors responded by betting on inflation-protected securities, or TIPS, which led to a sharp rise in inflation-free returns.
Despite this, inflation has probably peaked. Indeed, future data will be difficult to match the calculations for May 2021. At the time, vaccines had only become widely available, leading to rising costs in retail stores and restaurants as more and more people ventured out.
So what we are seeing now is a panic that could quickly recede as soon as we get more data.
So what does all this mean?
First, expect that the dynamics of the cycle from the middle to the end will take place after the fear of inflation recedes, which means that financial, energy and material companies will do it best. After that, look at the indices to recover and then reach new highs sometime closer to the end of this year under the guidance of cyclical stocks.
In particular, Shell This is a name that should be followed until the end of 2022. As mentioned above, many energy companies are well positioned in today’s environment, but Shell has perhaps the biggest advantage. The reason, in many ways, comes down to liquefied natural gas.
Liquid natural gas (LNG) tank.
Artinun Prekmung / Eye | Eye | Getty Images
The easiest form of transportation for natural gas may be the key to making Europe less dependent on Russian oil exports. The company dominates this market segment, delivering more than 65 million tons last year.
In a broader sense, Shell’s integrated gas business accounts for about 40% of the value of its net assets, and the scale of the company allows it to make big profits in shifting markets. This year, the shares could receive another 30% and pay 3.5% in dividends.
Segments of the healthcare industry also need to work better than most. Eli Lily has the most powerful existing pharmaceutical line in the sector, and its pipeline is promising.
While the company’s long-term prospects may depend on the effectiveness of Donanemab, a drug for Alzheimer’s disease, in trials that could change the game in the short term, a weight loss drug aimed at fighting obesity is a concern.
He showed promising results in a recently completed clinical trial. In the case of approval, the drug presents huge, multibillion-dollar opportunities.
Meanwhile, despite a recent public relations accident, Ulta Beauty controls a significant percentage of the high-end beauty and cosmetics market. True, it lost some positions during Covid’s shutdown, but adds more inventory to other physical locations to capture an even bigger share of that segment.
More and more white-collar professionals returning to the office mean good things for his business, while the cost savings he has created in recent years (since 2019 he has closed about 2,000 stores) are also helping.
Fear is a strong emotion. But that’s where many investors are now – overwhelmed with fear. And while no one should discount the problems of the current landscape, the environment is not as bad as it seems. Good days ahead.