Cela's Weekly Insights | 03. July 2022

Welcome back everyone! How's everyone coping with this lovely weather in Germany?

Let's start off with some good news for a change. Did you know that bear markets have always been followed by bull markets? And did you also know that bear markets lead to bull markets which tend to be longer and stronger than the downturns that precede them? Well now you know. Here's a cool chart for the non-believers. Just in case you're not a visual person: Since 1950, the average bear market (S&P 500 Index) has returned -34%, while the average bull market has returned +167% and has lasted about 15 months.

The second quarter is over, and we now know that the S&P 500 ended the first half of the year down about 20%, in bear-market territory. Since 1950, nearly 70% of bear markets were accompanied by recessions. I believe that is likely to happen this time around as well. At the very earliest in October (2022) we could enter a technical recession - that is when a country faces a back-to-back decline (for two consecutive quarters) in GDP. Instead of asking ourselves whether we're going to enter a recession, we should ask ourselves instead about the depth, diffusion, and duration of this recession. We should also keep in mind that recessions are a part of every economic cycle. There have been as many as 48?recessions?in the United States dating back to the Articles of Confederation which came into force in 1781. In other words, over the last 241 years America has, on average, had a recession every 5 years.

S&P 500 Sector Performance, YTD | 30. June 2022

Now that we know that recessions are about as frequent as the world cup championship (not as fun though) let's take a closer look at the year-to-date sector performance of the S&P 500 Index. It comes as no surprise that energy has outperformed the rest by a large margin and that of course is largely contributed to rising oil prices. On the other hand, inflation and rising interest rates have caused real estate, information technology, communications services, and consumer discretionary to suffer the most. In an environment of higher interest rates, one would think that financials are more profitable. However, surprisingly, they are down -19% on the year.

CNN Fear & Greed Index | 01. July 2022

Let's shift our attention to Mr. Market. Once again investors have entered extreme fear territory. You know what I'm going to say right? "Fear is good, extreme fear is better". The reason behind Mr. Market's mood swing is the Fed and other Central Banks around the world not yet winning the fight against inflation. In return Mr. Market expects interest rates, especially in the United States, to continue to go up. However, let's for a second shift our attention to another term that could become "trendy" in the near future: "deflation". According to reports, US-Retail-Big-Players Walmart, Target, and Macy's are sitting on huge inventories. In some cases, customers returning merchandise got their money back and were asked to keep their products. That sounds like a good deal to me, but not for the US-Economy which heavily relies on consumption (two-thirds of GDP).

That is one of the reasons why famous investor Michael Burry believes that the Fed might have to change its hawkish tone soon.

Market Performance | 24. June 2022 - 01. July 2022

So how did the markets perform this week? Well, we've had better days, to say the least. The biggest losers of the week were 10-year US-Treasuries and Bitcoin, both of which nearly gave up 8% on the week. On the other side, we've seen the Chinese market slowly start to recover. This week the Hang Seng Index had a positive performance of +0.65%.

INVESTMENTBABOS in Paris

This week there was also a lot of action outside the markets. On Thursday we (Shareholder Value & INVESTMENTBABOS) were in Paris for 2 days together with Carmignac, Clartan Associés and HORBACH. Together with the top investment specialists of HORBACH we spent 2 intensive days discussing different topics in the world of investments. On Friday we officially launched the 5th edition of Fondsgipfel-Akademie and on Saturday I had a lot of great conversations at the tecis Investment Congress (tIC) in Hannover.

tecis Investment Congress 2022 in Hannover (tIC)

That's all for today. If you've made it this far, thanks for tuning in ??.

Cheerio!

Endrit Cela The Investment Fella - #ECB #mm ??