Wall Street is strongly divided on buying declines as the US stock market is on track for its worst January since 2009.
Buying a downturn or adding stocks during downturns has proven to be a lucrative strategy since the beginning of the pandemic. Markets recovered higher and faster as monetary and fiscal policies kept lending rates close to zero and flooded the economy with money.
But while the Federal Reserve is working to curb high inflation, investors strongly disagree on how well the markets will recover this time.
“The buy-back reflex must be countered in an environment we are likely to continue to face in 2022,” said Rob Sharps, the new CEO of T Rowe Price, a fund manager who monitors assets of 1.7 trillion dollars.
Bill Gross, founder and former chief investment officer of a $ 2.2 trillion fund manager. Pimco told the Financial Times: “The buying mentality has been erased from the market.
Markets began roughly by 2022, as high-value technology stocks and losing but lively names were pulled back to earth. The Nasdaq Composite Technology Index fell nearly 13 percent since the beginning of the year, while the S&P 500 index of U.S. stocks with blue chips fell 7.6 percent, even after a rally late Friday.
Shares have been booming as investors struggle with US interest rates. The Federal Reserve signaled this week that it would start raising interest rates in March, and Jay Powell, chairman, left open the prospect of an aggressive sequence of interest rate hikes during the year.
Wall Street analysts have warned: HSBC has warned investors that there are few indications that Powell will step in to support the falling market, while Jeffries said the more the Fed tightens, the more optimism the markets will question.
“Any environment in which there is a reversal of monetary policy adjustment makes it difficult to expect that returns will be stable and that it is definitely the right thing to do to buy any withdrawal,” Sharps said in an interview with FT.
Others, however, pounce on the retreats. Billionaire Bill Ackman, head of the hedge fund Pershing Square, said this week that his group had bought more than 3.1 million shares of Netflix after the price of the video streaming company fell.
“Many of our best investments came when other investors with short-term horizons dumped great companies at prices that look extremely attractive when one has a long-term horizon,” Ackman said in a letter published Wednesday.
Jonathan Gray, president of Blackstone, said earlier this week that “the market is changing and the average value of Nasdaq shares is falling by more than 40 percent [from last year’s all-time high] can create opportunities “for the manager of private investment and alternatives with $ 881 billion in assets.
And Ark Invest’s Katie Wood, whose once-leading technology equity portfolio has fallen 27 percent since early 2022, said this week that “innovation is on sale” after asset prices fell.
Analysts note that sales this month were not simply driven by concerns about interest rates, but by fundamental factors as companies trading at high valuation rates began to look more uncertain.
Gross said that as the Fed’s policies tighten, investors, especially new ones who have only experienced a bullish market, will shy away from buying stocks down the road “in what we are beginning to see as a bear market.”
Additional report by Nicholas Megau