The second third of 2022 started with weak performances for the main stock indices. On Wall Street, the benchmark S&P 500 index and the technology nasdaq fell for the fifth consecutive week; the Dow Jones, for the sixth, and in Europe, the German DAX turned red for the fifth week.
This same behavior is repeated in almost all the planet bags And regardless of how long these pullbacks have lasted, it’s the magnitude and context that really make investors nervous, said Javier Molina, market analyst for the global platform eToro.
The Federal Reserve (fed), the US central bank, reported on Wednesday a rate hike of 50 basis points to a range between 0.75% and 1 percent. It was the biggest rise in more than 20 years, and it was made at a time when inflation is registering peaks that were not seen 40 years ago.
To this was added the disappointment due to quarterly reports from large companies in the market that are the ones that set the trends in the stock markets and that, according to Molina, are the ones that put the most pressure on the indices. Large companies like the giants amazon Y Alphabet (the array of Google).
“In general, we find lights and shadows. Companies like Netflix (and more recently Lyft) have disappointed with their results. The problem is that we have entered a new context, after several periods with continuous growth quarter after quarter,” he said.
In many cases these disappointing performances, such as that of Netflix, have been related to price increases, he explained. the war in Russiaprogressive exits from confinement and other factors play against it, “regardless of the fact that companies continue to make money.”
“Investors are no longer buying the old story of infinite growth for companies. Prices are coming down as we have seen because they already realized that there was a overvaluation of the growth capacity of the technology sector”, added Molina.
The S&P 500 index, which measures the performance of the top 500 stocks in the american market, had its worst first third of the year since 2009, the third worst in its history. In the first week of the second it also fell and already accumulates a loss of 13.5% in 2022.
Apple Inc, microsoft, Amazon.com and Alphabet, in that order, are the largest stocks within the index and together represent approximately 10% of its weight. On the Nasdaq they represent about 40 percent. All are listed at significant discounts compared to closing records for 2021.
For Molina, the market is going “from one extreme to another and now growth below expectations is severely penalized. Some falls seem exaggerated to us and this could open the door to interesting opportunities… companies that trade below their indices.”
Alphabet, Meta Platforms (array of Facebook) and Netflix, of course, are shares trading below the multiples of their indices, businesses that, although they do not grow at the level they did in other years, continue to generate value, and in some cases with significant growth.
At the beginning of the year, after the growth observed during the pandemic, a portfolio rotation towards cyclical sectors could be observed to take advantage of the return of activities and exits from lockdowns. But this, assured Molina, reversed the roles in the market.
“What we see is the return of technology stocks to reasonable valuations. We can also see a change of roles, because in opposing examples defensive companies such as Coca Cola Y Walmart they are trading with very high ratios and it is normal”, he said.
Regarding the possibility that the adjustments continue, he stated that the negative trend will remain for some time tied to the uncertainty about inflation and war. This is why, he said, investors will be watching primarily oil prices, currently on the rise.
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