There is an old investing axiom that says markets hate uncertainty. What generally happens when we are faced with uncertainty is that it can trigger a fight or flight response.
Right now, flight seems to be the preferred option with around US$10 trillion already wiped off global equity markets. Uncertainty, it would appear, is all pervasive.
For instance, we are unsure if a concerted global economic slowdown could result in worldwide recession. If recession should ensue, then will it be short and sharp or could it be long and drawn out? Nobody really knows for sure. There is a lot of guessing, though.
Uncertainty has not been alleviated by turbulent events in the UK’s bond market, just when investors thought that fixed-interest instruments would be a safer bet than shares. Jumping from the frying pan into the fire springs to mind….
…. What on Earth was the Truss administration playing at when it delivered a massively-unfunded giveaway budget? Did it really believe that investors would be naïve enough to continue to buy UK Gilts without being adequately compensated. Thank goodness the Bank of England stepped in to save the day. But uncertainty prevails.
There is also considerable uncertainty about just how far the US Fed might go with its rate hikes. The pace at which the Fed has increased interest rates has been quite unprecedented. It has jacked up the Fed fund rate by 300 basis points in seven short months.
What’s more, it has only just begun withdrawing liquidity through its Quantitative Tightening programme. It is anyone’s guess how global markets will react after $2 trillion has been sucked out of the system? How much lower can asset prices go?
Then we have China that has painted itself into a tight corner. The embattle Middle Kingdom continues to spin its tiresome line about zero-COVID, whilst dreams of common prosperity for its people through ever-rising property prices has failed miserably. And still, it continues to befriend the despotic Russia leader, probably because it has annexation ambitions of its own. What a mess.
With more uncertainty that an ordinary investor can cope with, what should we do?
Stay invested, is the simple answer. But not all companies will be able to tolerate the onslaught of high interest rates, low liquidity, elevated inflationary pressures, and heightened geopolitical tensions.
Consequently, it is vital to pick our stocks with care. This is a stock-pickers market. But when it comes to investing in equities, it should always be a stock-pickers market.
Get more stock updates on our Facebook page. Click here to like and follow us on Facebook.