Don’t think it’s the end of the bear market already: Talaria Capital
Investors have been cautioned about interpreting recent market rallies as being sustainable and advised to ensure their portfolios remain diversified to withstand a range of market conditions.
This is the view of Hugh Selby-Smith, co-chief investment officer at Talaria Capital, who said a durable bottom in equity markets appears to remain some way off, with the recent market move upwards likely to be a good example of a bear market rally rather than a sign of the market turning.
“Investors should be careful of interpreting such rallies as sustainable, as it is common to see these kinds of countertrends during the course of bear market declines,” he said.
“But I have also been around long enough to know that anything can happen, in which case I would encourage investors to build a portfolio that is robust in dealing with a range of outcomes.”
According to Selby-Smith, the recent rally in share prices was built on the idea that the Federal Reserve may have turned dovish, combined with a US earnings season that contained few negative surprises.
However Selby-Smith said investors need to more focused on the future earnings season.
“The market has rallied in the face of an increasingly poor earnings outlook as bond yields have retreated,” he said. “It appears market participants are convinced that the half-point fall from the highest core inflation in 40 years, currently at 5.9%, will encourage the Fed to ‘pivot’ to lower rates in no time.
“Yet when core inflation is above 2.5% and the federal funds rate has been lower, the Fed has never shifted to easing unless a recession has pushed the unemployment rate toward 6% or higher.”
As a result, Selby-Smith would be unsurprised if the recent rally should prove short-lived, as Talaria Capital believes there is still some way to go in the current bear market.
“However, as we have seen recently, this doesn’t mean there won’t be occasional strong recoveries in share prices, when indices go up against the long-term downtrend,” he said. “This can be a good time for investors to rebalance their portfolios to take advantage of opportunities in the markets.”
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