A gut wrenching, double digit equity decline amidst a global bond selloff and unprecedented FX gyrations leads one to conclude that extrapolation has been the name of the game.
Whether its extrapolating inflation trends, Central Banks’ response, King Dollar’s rise, UK’s tempest in a teapot or weak economic data into recession, its been all the rage bc its been pretty much the right thing to do.
The question is – will it continue to be the right thing to do? We don’t believe it will & argue that many of these trends are primed to either ease or reverse in coming months.
In the interim, risk assets are cheaper in many cases than they have ever been with sentiment the worst, positioning the lightest and risk appetite the lowest as we exit the worst seasonal period and enter the best.
Therefore, as hard as it has been, we are sticking to our conviction in a high nominal growth world that will support earnings and risk assets around current levels. Bottoms are a process not a date or level.