October 4, 2023

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Sir Isaac Newton, Depression and the Fall of Markets

Sir Isaac Newton, Depression and the Fall of Markets

By Demosthenes Triga

Investors all over the world, both professional and non-professional, are trying to answer the question: when will the recession come on the other side of the Atlantic, that is, in the United States. It is a question where, when the answer comes, it will actually be priced into the markets with the major currencies down more than 20%. For now, investors are ruling out a soft landing for the US economy. But at what point in the economic cycle are the major economies on the planet? Which markets and sectors have been outperformed by rising interest rates? In the event of a drop in interest rates, who will be the champions?

Throughout history, bull market cycles have been half of the “full market” cycle. During each economic cycle, the market and the economy create excesses, which must eventually be reversed through market fluctuations and economic downturns. In other words, as Sir Isaac Newton discovered: “What goes up comes down.”

According to Fidelity’s chart of the world’s largest economies, China appears to be out of recession and the United States and the Eurozone are about a foot ahead of the recession. Visualization helps us understand where we stand in the economic cycle so that we can adjust our investment choices accordingly, as the full market cycle is visible. So the question is not if it will come, but when!

JP Morgan data shows that the stocks that outperformed the US 10-year rate hike were value stocks, by far the best, followed by small-cap stocks and Japanese stocks. It is worth noting that Japanese stocks hit 30-year highs in 2023 as they struggled for many years.

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On the other hand were developing stocks, as rising interest rates disproportionately increased their financial costs, reducing their earnings and, consequently, their value. US stocks were the second worst overall, and were almost tied to large-cap companies as investors shunned them for fear of a potential recession.

Then, the energy and financial sectors in particular benefited from higher interest rates, with the latter sector seeing an increase in interest margins and making impressive gains while their share values ​​soared.

But that’s all fine, but in the event that interest rates drop after a few months (maybe more than a few months), which sectors will be the main players? Of course, this has a prerequisite: the US economy will not fall into a severe recession! Therefore, the lion’s share goes to the information technology sector, as it is already experiencing historical moments with profits since the beginning of the year that have been impressive. A Very Short Distance Telecom Sector follows with Metaplatforms as the protagonist.

Otherwise, the market expects interest rates to remain elevated for a while longer and perhaps move up a few more basis points, heading towards 6%, which James Dimon, CEO of JP Morgan, also indicated. In this case, we will see technology stocks underperform, and stocks, energy and financial institutions outperform the index. Such a thing is not possible at the moment!

In conclusion, the market assumes that the US economy will not fall into recession for at least the next six months as technology and telecom services lead the way, which means no more large price increases. If the US market enters into a severe recession, the market will discount the movement at least 6-9 months in advance with huge losses. Finally, don’t forget: “Successful investing means anticipating the expectations of others.”

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For the fourth consecutive month, foreign investors are selling in AHA

The participation of foreign investors in the total capitalization of the Greek market in July reached 63.20%, compared to 63.56% on June 30, 2023, recording a decrease of 36 basis points. Excluding the participation of the HFSF (€4.05 billion or 5.2%) in the total Greek market capitalization, the participation of foreign investors was 66.76%. The capitalization of AX on 07/31/2022 was calculated at 81.25 billion euros compared to 77.96 billion euros in the previous month, an increase of 4.2% compared to 4.4% of GDT.

On the level of capital inflows, foreign investors continued to be net sellers on the ASE. With 116 million euros in July. In particular, foreign investors continued the liquidations that began in April with a total balance exceeding -213 million euros since the beginning of the year. The three largest net inflows of foreign investors for the month of July came from the United Kingdom with €55.6m, Germany with €30.8m and France with €17.9m. Meanwhile, the three largest inflows came from Ireland with €12.7m, Luxembourg with €10.6m and the USA with just €2.9m.

Foreign unit holders accounted for 51.9% of all transactions (buying and selling) in July 2023 (compared to 48.1% in the previous month). The countries with the highest portfolio value for the month of July remain the USA with a total value of €10.06 billion, Cyprus with a portfolio of €8.6 billion and Luxembourg with a total value of €5.12 billion.

Finally, the increase marked by the new portions of local investors was significant as it approached 5,065, a figure that should have appeared for at least 10 years! In addition to the improved stock market climate, the public listing of Mytileneos bonds also provided impetus.

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Agenda (16/08/23 – 20/08/23)

The focus is on the restructuring of the FTSE Russell Indexes and the derivatives expiry on Friday

Friday is the expiration day for stock options, SMEs and options on the FTSE / ATHEX Large Cap Index. Finally, on the same day, the FTSE announced possible changes to the FTSE indices. Potential changes will be implemented on September 18, 2023, while the previous implementation session saw an increase in trading activity as investors who follow the indices take their positions on both stock and weight changes. The next announcement is slated for a planned review of November 17, 2023.

All eyes are on inflation and retail sales

Outside on Wednesday, inflation for July in Great Britain, change in eurozone GDP for the second quarter were released, while Building Approvals for July in the US were published in the early afternoon. In terms of financial results, Cisco Systems (Dow Jones) is next. On Thursday, the Philadelphia Fed Manufacturing Index is released based on August data, while Wal-Mart (Dow Jones) publishes economic results. Eurozone inflation for July is published on Friday.

* Demosthenes Tryngas is a BETA Stock Exchange Certified Stock & Market Analyst – [email protected]

** Republished from Kefalio Newspaper