Every week, market veteran and president of Winston Capital Advisors, Fabian Onetti, gives his take on what will impact markets in the weeks ahead.
Last week was brutal to say the least. The markets, almost all of them, had such a correction that we have almost forgot how to go about them. Many esoteric strategies blew up, and all because of some small inflation number.
It’s in moments like these that people will lose clients if not careful.
It is not about losing money. Most clients understand that investing is about taking risks, and that those risks may involve loses over time. However, they will get very angry if in moments like last week you don’t reach out to them.
Sometimes we don’t have the answers as to why things are happening in certain way, but this is excuse to let your clients know that you are there to serve them, to be a sounding board of their worries and concerns but also to discuss if corrections like last week are new opportunities for deploy capital. Don’t forget that.
On to the correction. Much has been said about what caused the problems last week and why it should and or should not have happened. I have spent a good amount of time debating it and composed a list of pros and cons on the market moves.
For the correction:
- The US deficit, which is exacerbated by newly introduced tax laws
- The end of quantitative easing not just in the US but also in the European Union and possibly Japan before this year's end. Who is going to buy all those bonds now?
- Inflation, the big monster that showed its ugly head with the last US Labor report
- Raising interest rates by central banks, not only the Federal Reserve but also the Bank of England and Canada for now. Others will soon follow
- The implosion of esoteric strategies
- Investors' complacency
Against the correction:
- The economy is growing okay, no recession in sight
- Earnings are growing. Fourth quarter numbers in general were very strong
- The US has a new tax bill, most importantly corporate taxes are being cut
- The growth is global—not just the US—and it is happening to most countries at the same time, which is something that we have not seen in decades
- The credit markets are okay and the default rates are at all time lows
- The valuation of the markets is okay, especially at the post correction levels
- Most big money was quiet last week
My conclusion is that we were due for a correction, all the markets have gone up almost without a break. At the moment I like it, but we will be data dependent on the inflation numbers, this could change the game. Stay tuned.
Winston Capital Advisors is a firm that advises international advisors on capital markets and wealth planning. A former director at Morgan Stanley, Onetti has over 30 years of experience in international wealth management.