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Investors warned against ‘fighting the Fed’

They could be ‘buying the dip in the face of relatively straightforward central bank policy’

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Investors could walking into a trap of unknowingly buying the dip in the face of relatively straightforward central bank policy according to Chris Rush, investment manager at Iboss.

July proved to be a strong month for global equities with the MSCI World Index posting a 7.72% gain, the highest monthly return since November 2020 and only the second month this year to post a positive figures.

But what Rush said is striking about these figures is that the market backdrop has not fundamentally changed from previous months.

At the same time, having consistently outperformed for the majority in 2022, he said value stocks underperformed their global growth counterparts in July as equities surpassed on the upside.

Rush noted that while global value stocks posted a respectable 4.4% in July, this paled compared with the 11.3% return generated by global growth stocks.

“The reversal could show that many investors are looking to buy the dip in the popular retail assets that have previously dominated headlines and outperformed in a low-rate environment,” he said. “But instead, these self-same investors are now, perhaps unknowingly, buying the dip in the face of relatively straightforward central bank policy.”

‘Fighting the Fed’

Rush said essentially these investors are now “fighting the Fed”, an approach to investing he argued that has been remarkably unsuccessful since central banks “became intrinsically linked with asset prices many years ago”.

“We cannot say how long this will last and what the result will be, but we would caution investors against being too exuberant considering the fundamental market backdrop,” he said. “Conversely, we would also caution investors against being too pessimistic.”

For Rush, July has demonstrated how quickly markets can turn around and he added that missing the best days can greatly impact client valuations.

“As ever, we feel that diversification is increasingly essential as the wider range of potential outcomes develops,” he said.

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