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Markets Begin to See Light at the End of the Tunnel

By Investing.com (Francesco Casarella/Investing.com)Stock MarketsDec 02, 2022 16:54
uk.investing.com/analysis/markets-begin-to-see-light-at-the-end-of-the-tunnel-200549425
Markets Begin to See Light at the End of the Tunnel
By Investing.com (Francesco Casarella/Investing.com)   |  Dec 02, 2022 16:54
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  • While it is still early to call an end to the bear market, there may be light at the end of the tunnel
  • At this stage, the key is to focus on what is yet to be priced in rather than on what has already been priced in
  • Still, investors must stay calm and avoid embarking on market euphoria

It remains too early to call victory, but clearly, we are beginning to see that famous "light at the end of the tunnel" that I talked about in the past months amid the bear market.

At the peak of investor desperation, with markets at -25/30%, I suggested focusing on what could still happen instead of what had already happened.

But investors, you know, often chase the headline that blows the loudest or the prophet on duty who does a better job at riding the momentum (easy to be bearish with markets at -30%, you definitely get more consensus).

When we invest our money in the markets, we should never do so by analyzing what happened in the past, but instead we should analyze what the market is actually pricing today and what it has yet to be priced in. I have been repeating this concept a lot this year, but let's review it together.

Already priced in:

Yet to be priced in:

  • End of Russia-Ukraine conflict
  • Soft landing
  • Softer rate hikes
  • Resilient earnings
  • Inflation rising again

Get the picture?

So in the second list, except for a possible inflation surprise (which may prove more resilient than expected), all other factors lead to improvements in the current scenario and, as such, can positively affect prices.

The most concrete example happened Wednesday, when Powell said: "Moderating the pace of rate increases may come as soon as the December meeting," adding that the Fed's monetary policy was approaching "the level of restraint that will be sufficient to bring inflation down."

Powell simply stated that the December hike would be 50 basis points and, with less aggressive hikes, the recession could trend to a soft scenario.

So once again, let's try to understand how markets work and remember the usual trivial but fundamental rules that I won't mention again because you know them by now.

Bull/Bear, Put/Call Ratios
Bull/Bear, Put/Call Ratios

Source: Yardeni.com

Five years from now, or ten years from now, we won't even remember this moment anymore; what will remain will be the patient and wise purchases made in the moments of greatest panic, with the most discounted values.

I still don't know how my 2022 in the markets will end, I will update you in late December here, but in any case, in the end, it will be just another year (for me). For someone else, it will instead be yet another missed opportunity.

Until next time!

Disclosure: The author is long on the S&P 500.

Markets Begin to See Light at the End of the Tunnel
 

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Markets Begin to See Light at the End of the Tunnel

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Comments (6)
Jason Rich
Jason Rich Dec 06, 2022 10:18
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As per Ben’s comment there are very selective ‘yet to be priced in’ suggestions here … implied as fact.Not to mention what I consider a hysterical reference to Powell thinking he’s avle to control inflation with interest rate hikes etc. … economists always making things add up after the facts!
Marcello edwin
Marcello edwin Dec 04, 2022 20:28
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well said!
Ben Carcani
Ben Carcani Dec 04, 2022 18:41
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This is a shame of an article. Read and act on it at your own risk! Who said the market has priced in a recession and not only a soft landing? Who said market has priced in “weaker” earning ls and not instead “not sufficiently weak earnings”? Market may have not priced in a solution to the war but it has not priced in an escalation either. What BS!!! This massively misleading at best and outright lying at worst.
Nigel Bakhai
Nigel Bakhai Dec 04, 2022 13:49
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There is normally a Christmas rally in December and then back to reality in January
Tony Toller
Tony Toller Dec 03, 2022 12:07
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Everyone else seems to be predicting a major crash early in the new year?
Mario Coulanges
Mario Coulanges Dec 03, 2022 0:14
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Nicely said well done 👌
 
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