Global stock markets will be mixed this week as investors brace for the crucial Fed meeting and rotate towards value stocks, says the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.
The assessment from deVere Group’s Nigel Green comes ahead of the U.S. central bank’s policy makers’ meeting this week at which they could signal the first lift-off in U.S. interest rates since 2018 as they try to combat red-hot inflation.
He says: “After the dramatic recent volatility during which global stock markets recorded their worst week in more than a year, markets will be more settled again this week.
“They will be in a holding pattern for much of the week as investors wait and see the outcome of the Fed’s meeting on Wednesday.
“Many will be preparing to commit new capital to build portfolios as history teaches us that U.S. equities perform well when the Fed raises rates, as a growing economy typically supports corporate earnings growth and the stock market.
“Sentiment will also be muted as investors await earnings updates over the next few days from titans including Apple, Boeing and Deutsche Bank, amongst others.
He continues: “The next weeks will continue to be defined by a rotation towards value stocks.
“After years of growth stock outperformance, many investors are changing their mind and move towards cheaper stocks which are based on earnings and cash flows.”
Value stocks, explains Nigel Green, are valued more based on near term cash flows meaning they are not as “vulnerable to rate hikes for their intrinsic value”; whereas growth stocks are “much more valued on cash flows way into the future.”
He goes on to add: “Expectations for tech stocks have been too high of late, so a slight miss could crush some investors. Of course, tech will continue to be a megatrend, but some companies are now oversold.”
His comments echo the sentiment that last week left the tech-heavy Nasdaq index in correction territory.
Nigel Green concludes: “Major policy announcements and big corporate updates will mean that global stock markets will be mixed this week, but more settled than in the first few weeks of 2022.”