Last month’s fund flows simulated similar patterns to the 08’ global financial crash. Decelerating economic growth, rampant inflation, persisting concerns around the pandemic, and war-driven geopolitical tensions in the continent are all contributing factors for the net outflows recorded in February across global funds—with European funds registering the lion’s share of outflows.
February’s events proved that there are few places for investors to hide during a broad market selloff. While it’s easy for this realization to prompt panic in times like these and push investors towards adopting a risk-off approach, the opportunity cost of not buying the dip is massive.
As during the initial weeks of the Covid-19 pandemic, equity markets have shown an initial rebound from last month’s lows. Specifically, during this selloff, as the head of global markets at Calastone put it,
“Stock markets have certainly fallen since the Russian army invaded Ukraine, but the falls have not indicated a rout. This is reflected in equity fund flows –buyers have gone on strike, rather than sellers going hell-for-leather, suggesting that caution is the name of the game, rather than a rush for the exits. Buyers have simply opted to sit it out on the sidelines for the time being.”
As depicted above, S&P 500 has recently completed a bullish reversal, with confirmation from the MACD oscillator. These words were largely proven correct, and now buyers appear to be back in the market. Albeit still hesitant, there is solid evidence that buying volumes have increased in March, with many indexes recording bullish breakouts from their recent downtrends.
Despite the market’s positive reaction and the short-term decrease in volatility, global events are very fluid, and geopolitical tensions can unpredictably deteriorate—including scenarios the markets have not yet priced in. In this volatile global environment, investors should focus on their portfolio’s geographic split, strategically prioritizing country indexes that have completed bullish breakout confirmations (i.e., NDX, SPX).
As depicted, NDX has also confirmed a bullish reversal, with the weekly chart identifying a significant support area between $12,900-$13,000.
Finally, the significance of prudently managing risk should not be disregarded. Strategic stop losses ought to be set in previously significant levels—surprisingly, plenty of stocks are near pandemic lows. The key is correctly prioritizing building equity exposure with price action as your ally.
STOXX 600 remains in a downtrend, testing the upper limit of the trend.