The long-term investor is always a winner, Which recession can it be?, Value vs. Growth
Chart of the week
The chart shows the return of the US main stock index S&P 500 since 1871. The phases of a recession are marked in red.
Why this is important
Although stock markets often decline in the run-up to or during a recession, and losses in value of 20% are not uncommon, it doesn't matter in the long run when you get in as an investor.
If one has a long-term investment horizon of 10 or more years, the time of entry does not matter, one will make a profit with stocks. Every setback is therefore a good opportunity to buy at a good price.
So you shouldn't get too carried away with the current negative mood on the stock markets.
Which recession can it be?
Last Wednesday, the minutes of the last Federal Reserve meeting in the U.S. were published. Now it is official, the Fed is also firmly assuming a recession. However, the Fed expects a short and mild recession.
The chart shows which number of analysts expect a recession and with what probability. On average, only 65% expect a recession, although there are major differences. The two largest banks in the US, Wells Fargo and Bank of America, expect a moderate recession and warn of a 10-20% slump on the stock market. Goldman Sachs, on the other hand, expects only a 35% probability of a mild recession. Thus, the analysts are not in agreement and their opinion differs quite strongly from that of the Federal Reserve.
On Wednesday, the latest inflation data for the end of March were published in the USA:
The inflation rate fell more sharply than expected. It fell to 5%, whereas a value of 5.4% had been expected. However, core inflation, excluding volatile food and energy prices, was only slightly changed from the previous month at 5.6%.
The chart shows how the monthly change in inflation came about. For March, the large negative green bar is predominantly noticeable. This symbolizes the falling energy prices. Here it should be noted that next month, this bar will disappear. After the production shortage of OPEC Plus, energy prices will tend to rise again in the coming months.
The main focus in the figures is on the blue bar. This symbolizes the "services" thus mainly the wages. This bar also fell in March. This is the component on which the Federal Reserve is currently focusing most of its attention. Even though the decline in wage inflation is very encouraging, it is not yet confirmed by all sides:
The chart shows a data collection by the Atlanta District Federal Reserve. It measures local wage development and is a good leading indicator. The indicator does not yet confirm the decline in inflation.
In Europe, things still look bad as far as wage inflation is concerned:
The chart shows a survey of European companies on whether they can find enough workers. Many report problems finding enough qualified workers. This points to the need for wage increases to fill the gaps.
Therefore, even though the US Federal Reserve (FED) may soon stop raising interest rates, it is likely that interest rates in Europe will continue to rise.
Profit statements and banks
The chart shows the expectations for the earnings season for the first quarter of 2023. Expectations have fallen steadily since last August. A 4% reduction in profits is now still expected.
The first companies to report profits are always the banks. Precisely because of the banking crisis, these figures were eagerly awaited:
The chart shows the price development of banks in America since the outbreak of the banking crisis. JP Morgen and almost all the big banks have been able to regain confidence and share prices are rising again.
The situation is different for the smaller banks. There, share prices continue to fall. It would therefore not be surprising if one or two smaller banks in America were to go bankrupt.
Value vs. growth
After growth stocks had the better return than subtance stocks like Nestlé or Coca-Cola for almost 10 years, the tide has turned since the beginning of 2022:
The chart shows the return of the broad U.S. equity index S&P 500 (blue) and the return of growth stocks (purple) and substance stocks (orange). Since January 2022, the difference in returns is 29%.
The chart shows the difference in returns between substance and growth stocks in 2023. Here, growth stocks are again ahead. The return on growth stocks is 5% better than that on substance stocks.
In view of the impending recession, the picture is likely to turn again. In such market phases, substance stocks generally have the better return.
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