Strong economic growth – Profits above estimates
As the economic cycle progresses and growth matures, so does the investment sentiment. American households are "sitting" on savings of several trillions, which, given the economic circumstance, will be directed to the stock markets.
In addition, 80% of S&P 500 companies have announced third quarter results with 85% of them announcing better results than analysts estimate. This is another reason that pushes the investment sentiment to higher levels.
Inflation above estimates - Rising returns of treasuries
Στο 6,2% Inflation in the US rose to 6.2% in October on an annual basis, exceeding estimates for a rise of 5.8%. Inflation is at its highest level since 1990, when it had climbed to 6.3%. The rise is due to price increases in a wider range of the economy, such as real estate, used but also new cars and of course significantly higher energy prices.
The announcement led to an increase in the yield of US treasuries as the steady strike of inflation at high levels leads to bets on faster higher interest rates’ implementation. Analysts estimate that inflation is expected to peak in January.
Sharp downfall for startup stocks that thrived during the pandemic
The past twelve months have been extremely lucrative for many companies in certain industries, while in addition many start-ups grew overnight. Some examples of such cases are: Peloton, Robinhood, Coinbase. All three took full advantage of the new trends created by the pandemic, achieving amazing quarters’ results. It was almost certain that this tremendous growth rate could not be continuous and so now all three companies announced significantly lower corporate results than estimated.
Peloton (Nasdaq: PTON US) has been found in the right place at the right time as it had come out with the IPO just six months before the pandemic. So the stock jumped from almost $ 20 to over $ 160. With the gym reopening, the company saw revenue rise just 6% and cut its valuation estimates by $ 1 billion. The stock fell 28% in one session, approaching pre-pandemic levels.
Robinhood (Nasdaq: HOOD US) after the announcement of disappointing results on October 26, when the stock fell more than 8%, was "hit" this week by an attack on its servers, resulting in the leak of personal data of 7 million customers. As a result, the stock lost more than 6% of its value on Wednesday and is now below the IPO price at $ 38.
Η Coinbase (Nasdaq: COIN US) is still in a better position with its future perspective being positive, but the third quarter saw trading volumes fall 30% due to lower volatility and falling cryptocurrencies.
The supply chain will show a better picture from 2022
It is a fact that the recovery of the industrial sector after the pandemic is facing significant shortcomings but also significant delays in transport. This has led to a situation where many industries are unable to produce in full capacity resulting in declining orders. However, it is good to see the situation through the supply chain itself and the companies that are part of.
According to Siemens, the problems appear to have improved significantly in 2021 and this could give even more momentum to the global industry to achieve greater growth rates and even greater profitability in the coming quarters.
Infrastructure bill: Aid for the US economy – “Gift” to China
The $ 1.2 trillion package. to stimulate the US economy through infrastructure modernization, is expected to provide a significant boost to the economy as well as stocks. This program covers a huge part of the overall economy, from raw materials to machinery and from technological equipment to manpower. The approval of the package is expected to favor heavy machinery companies with China expected to be favored. Among others, the most well-known companies are the following.
China: Can the technology sector close higher at 2021?
The tech industry in China has found itself in the middle of a very tough redistribution and reorganization that came from the government's desire to control the growing power that the sector gained as it grew. In any case, these efforts have been terminated for the most part and already the well-known company DiDi announced that it will start reactivating its Apps in the Chinese market, with the result that the shares jumped 12%.
Nasdaq and China Technology have historically had a very high degree of positive correlation with the result that this huge discrepancy observed in 2021 leads with mathematical precision to attracting capital to the Chinese technology sector. If that happens, the margins are extremely high, offering China's technology sector one of the highest estimated returns for the months to come. After all, the technology sector remains one of the most promising sectors to invest in the world.
Risks and chances in the markets
The next period is expected to be particularly demanding for the markets with volatility appearing frequently giving boost to the market. As the economic environment has changed, investors need to be very selective in their choices as the transition to a fully open economy will benefit a few of the companies that have grown into the pandemic and will certainly continue to favor large companies.
Technology may be facing rising interest rates, which is a deterrent, but investors should keep in mind that when conditions are unclear, investors consciously choose to invest in mega-cap companies that offer stability, historical continuity and clear business models for the years to come. The economy remains strong and when the major shortage and transport problems are resolved, then we could have a universal return on investment sentiment. In addition, given the trend towards ESG investments, portfolios that have exclusive exposure to this investment trend are expected to benefit.