By: Gonzalo García Arboccó, Commercial Director of MFX Prime.
Since the end of last year, the American stock market changed its trend. All equity financial products, which made big returns in technology and innovation stocks during 2021, started a race to the bottom losing their gains. The enormous stimuli delivered by the American state and the Fed’s efforts to reactivate the post-pandemic economy; dragged the dollar to the highest inflation of the last 40 years with 9.1%, scaring investors globally.
The interesting thing about this change in trend is that there was no sector or industry that was spared this fall. Neither the quintessential safe haven asset, gold, nor the retail investor’s favourite, Bitcoin, were able to overcome market uncertainty.
After 9 months of bear market, Wall Street shakes as it comes out of its worst week since the 2020 pandemic figures. This, as a result of the dismal investor reaction to the inflation surprise and the anticipation of a more aggressive increase in rates by the Fed. As a consequence, the great uncertainty that has been stalking the market for months has increased and, therefore, forces us as financial analysts to recommend a conservative action plan. We believe that we are at the moment of greatest volatility prior to the last strong correction in the market.
Our recommendation for the last months of the year is as follows: stay in dollars, due to an unstable Peruvian political scenario, and diversify part of the portfolio in a variable income fund, in dollars, that goes against the American market. This is strategic because it pays off as rates continue to rise and the market continues to fall. In addition, these funds will be the safest alternatives to buy cheap assets, when the time comes to change the trend.
Likewise, we strongly recommend keeping an important part of said portfolio in dollars, in “cash”, waiting for the turbulence of the following weeks to pass until the end of the correction of the American indices. This alternative will give us several interesting purchase opportunities in leveraged ETFs, such as, for example, the “ProShares UltraPro S&P500” that replicates the performance of the S&P500 multiplied by three, which will be key to have in the portfolio when identifying the market floor.
In the words of Warren Buffett, “the stock market is a device for transferring money from the impatient to the patient”, and we find ourselves in a scenario where patience will be key to seeding the right portfolio in the following bull market years.
