Concerns about Russia’s invasion of Ukraine, surging oil prices, widespread inflationary pressures, Federal Reserve interest rate hikes and lingering worries about the ongoing pandemic have all combined to keep a lid on stocks.
Investors are shunning riskier stocks. Blank check SPAC firms tanked during the first quarter and the market for initial public offerings ground to a halt. According to data from EY released Thursday, the number of global IPOs plunged 37% from a year prior.
“The market shock from geopolitical tensions and other economic concerns in the second half of the quarter created volatility and impacted the capital markets,” EY global IPO leader Paul Go said in the report. “There is a risk that IPO activity will continue to slow further with IPO candidates choosing to postpone their transactions.”
Value triumphs over growth and momentum
In other words, momentum stocks have clearly lost their appeal to sectors in more bargain areas of the market.
“This trend of value over growth appears to be still in its early stages, given the Fed’s clear intentions to raise rates through 2022 and 2023,” said David Keller, chief market strategist at StockCharts.com.
“Most financials were rallying in anticipation of rate hikes, right up until the beginning of a tightening cycle,” said Michael Arone, chief investment strategist with State Street Global Advisors. “But now that portions of the yield curve are inverting, that poses challenges.”
Arone said he doesn’t expect doom and gloom per se, but he thinks investors do need to prepare for a slowdown.
“Think about higher quality, dividend paying stocks to offset the harmful impact of inflation,” Arone said, adding that energy and materials companies should benefit from rising rates and higher commodity prices. “Investors need to recalibrate their portfolios but not do anything overly dramatic.”