If 2021 was a year of easy rises on the stock market, 2022 started with more difficulty, but it won't be particularly risky: the greatest dangers will come in 2023, a year to be approached with great caution on the markets. This is what Alessandro Fugnoli, Kairos strategist writes, in the last article of the column "The red and the black".
The analyst explains that there is no reason to worry too much, because the market trend is following - albeit with some important changes - the same script of the four previous stock hikes which, since the XNUMXs, have had a ten-year duration.
In particular, Fugnoli points out that, after a crisis, these cycles always begin with a carefree period, which in turn are followed by four phases:
- la fear of rising interest rates (usually between the second and third year of recovery);
- la fear of growth (between the fourth and fifth year, originating from the doubt that the monetary tightening was excessive);
- la fear of inflation (accelerated after central banks stopped normalizing rates);
- la fear for profits (eroded by overinvestment, rising costs and the end of the demand backlog).
However, according to Fugnoli, the current cycle differs from this canvas on three fronts:
- will be "shorter, more concentrated and more intense” of the previous four cycles;
- inflation already arrived in the second year, rather than manifesting itself in the second part of the cycle;
- the rise in prices did not initially generate a wave of interest rate fears, as it was long seen as temporary.
So what can we expect for the next few years? The Kairos strategist believes that the wave of fear of growing up it could arrive as early as 2023, due to rate hikes and the resulting drop in liquidity. Not only that: even the fear for profits it could manifest itself sooner than expected "if the slowdown in final demand - writes Fugnoli - takes away space for companies to unload the increases in upstream costs and labor costs downstream".
Negative periods are also included in the script, since all four previous cycles have known negative periods correction stages more or less in the middle: in some cases violent, such as those of 1987 and 2018; in others however significant, for example in 1997 and in 2015-16. Each time, however, the markets have managed to recover well, setting new records in the final stages of the cycle.
As for short-term considerations, Fugnoli admits that recovery started after the January downturn is slowing down due to some disappointing data on corporate earnings and indications coming from central banks, now more oriented to act against the increase in prices. "This cooling will have a positive side if it manages to break the neurotic cycle of corrections and quick counter-attack increases", continues the analyst, who also notes three reasons for optimism in the current situation:
- five Fed rate hikes this year are already embedded in dollar government bonds;
- monetary policy will be normalised from the ECB at a very slow pace;
- economies will continue to grow strongly in the second quarter of 2022.
