During the April to July quarter there have been some hefty falls in global stock markets. The largest falls have been in the US where the Nasdaq fell 18.5%, with many technology stocks falling much further. Tech stocks were undoubtedly overvalued, and I am pleased that generally our portfolios are underweight tech. This of course did not help while they were flying ever higher but many of these companies now look good value to me, and I will be looking to add new positions in good quality companies over the coming weeks.

The catalyst for the falls was when Central Banks changed tack. Having said for months that inflation was transitory they effectively changed their mind by announcing interest rate rises that were bigger than previously indicated. This signified the end of cheap money, at least for now, and led to a sell-off in technology and other growth sectors.

When I now look through the markets there are undoubtedly some very cheap stocks. Many good quality companies can be bought on very low valuations and in the UK many of those stocks come with very good dividends.

At the present time matters are finely balanced. A recession seems very likely but if we go into one, it is unclear how severe it will be. If it turns out to be short-term and not very deep (quite likely because of such high employment) then share prices are cheap. If a recession becomes entrenched, then some stocks will have further to fall. Viewed in the long-term however, many stocks can now be bought and tucked away.

Paul Coffin
July 2022

Clients receive a quarterly newsletter with more insights from Paul and the CFM Investment Managers. If you would like to join us as a new client you can do here

Or, if you would like to talk to one of our Investment Managers please email: support@capitalfinancialmarkets.co.uk