It’s fair to say equities look cheap and logically are the only sensible choice. This is in contrast to government bonds which are offering yields trending lower, with very overstretched capital values and further monetary stimulus remains a real possibility.
If we agree with PSigma’s chief investment officer Tom Becket then we could be on the cusp of making significant gains as a market rally is imminent.
The risk is the Eurozone is possibly on the brink of collapse and so a market collapse is seriously possible. We have seen many investors selling investments and turning to cash and other perceived safe havens. This sell-off has left some equities at bargain prices, assuming the Eurozone does not implode.
Even some of the most bearish commentators have highlighted recently that some cyclically adjusted price-to-earnings (P/E) ratio is back down to rock-bottom valuations. This is consistent with the bottom of previous long-term valuation bear markets.
S&P 500 & VIX – Weekly
We are and will be in volatile times but if this theory is correct then patience will be rewarded over time.
I also do not believe that policy-makers will sit by and allow the global economy to fail. It has been well documented by many of the concerns of the “contagion effect” of a serious failure in the Eurozone. The likelihood is this would have an effect on the US, Asian, Emerging and Global Markets – leading to an international catastrophe.
We have previously seen the assertiveness of nations to take action to prevent these scenarios becoming reality.
The only issue is the markets over recent years have many times surprised investors with actual unexpected outcomes.
In addition, the Greek election on June 17 and meeting of the US Federal Reserve on June 20 could be pivotal to the market direction.
With sentiment currently dreadful, with the popular press and 24-hour news services at least partially responsible for creating the wave of uncertainty, this could be a great opportunity. It is not uncommon at turning points in an investment cycle and investors should take a degree of comfort from the air of negativity, as often this provides a buying opportunity. In addition, it seems that ownership of equities by both professional and retail investors has fallen to extremely low levels and so it may be fair to suggest there are few sellers left to drive prices much lower.
My belief is the best time to buy is when appetite for risk is at its lowest!
welshmoneywiz 