Investors, keep your emotions in check!

There has been more nervousness on the international stock markets in recent weeks. The collapse of Silicon Valley Bank set in motion an emotional roller coaster. Pessimistic headlines have dominated the financial media day after day. In this case, keeping a cool head and not panicking is the right thing to do.

Strong surge in investor pessimism

Of course it may be expected that all this doom and gloom in the newspaper headlines will lead to pessimism among investors. This is also reflected in the CNN Fear and Greed index. This measure of market sentiment is currently indicating fear, and will probably stay there for a while.

However, you should be aware that bouts of panic like this have always offered good opportunities to savvy investors, provided they can keep their emotions in check. We expect this correction on the stock markets to be a temporary glitch in an upward trend.

Graph 1 : CNN Fear and Greed index

Source: CNN

The relative strength of the US technology sector

Graph 2 shows that US technology stocks have outperformed the rest of the market for several months (based on the S&P 500 index).

In a crisis situation, it is quite unexpected to see investors fleeing to somewhat riskier technology stocks such as Netflix or Meta (ex-Facebook). Generally, defensive sectors such as food and drink and pharmaceuticals are more in line with expectations. Add to this the sharp rise in Bitcoin in recent weeks and we can conclude the market still has quite an appetite for risk. In our opinion, the current stock market correction therefore seems to be prompted by a sector rotation (from banks to technology and other fields) and not by a general flight from stocks.

Figure 2: Relative performance of the US technology industry

Source: All Star Charts

The panic has had a positive effect on gold prices. Gold is still a haven or hiding place for investors who temporarily want to reduce their equity exposure. Bear in mind, however, that if we take a look at the slightly longer term, we see that the rise in the gold price started in 2015 already and now appears to be resulting in new record prices. Anyone who finds the stock market too nervous at the moment may well see gold as a good home for their money.

Figure 3: Gold price trend

Source: Grindstone Intelligence

The S&P 500 continues to rise

And in our opinion, that is still the most important conclusion! Figure 4 shows that ever since October 2022, the S&P 500 – still the benchmark index for international investors – shows a pattern of higher lows. That is a crucial factor in our stock market trend analysis: as long as that pattern is not broken (in other words, as long as this index does not fall below the "higher lows" of December 2022 and March 2023), there is no reason to panic and sell stocks. In the current circumstances, we are therefore keeping a cool head without any rash actions in the Keyprivate portfolios.

Figure 4: S&P 500 trend

Source: All Star Charts

The collapse of Silicon Valley Bank caused a panic and equity investor jitters. It is therefore advisable to take a step back from this emotional roller coaster and look at the trend underlying the most important stock market indices.

We find that there is still a pattern of higher lows. As long as this pattern does not change, we as investors simply have to accept this correction. It is part of the game. In the meantime, gold seems to be an option for those wanting to take a break from the game.