To ‘time the market’ is never a recommended strategy for retail investors. However, after a stock market crash or a big market correction, when the valuation of top stocks falls down considerably, there appears an opportunity for the investors to latch on. Already the 2022 stock market meltdown has impacted several highly valued stocks of Nasdaq 100 and S&P 500 indices. While the economic conditions continue to remain sloppy with inflation yet untamed and macro indicators are also not in favour. But, the risk-reward for long-term investors is high for those who venture into the markets now with a proper plan.
Mark Haefele Chief Investment Officer Global Wealth Management in a recent monthly note says that near-term uncertainty remains high, but this year’s sell-off has created investment opportunities for longer-term investors. Here are some excerpts from the report.
Central bankers continue to talk tough about inflation, but markets have largely moved on from worries about rising prices as the risk of overtightening and recession has come into greater focus. What does this mean for investors today? In the near term, we think the risk-reward for broad equity indexes will be muted. Equities are pricing in a “soft landing,” yet the risk of a deeper “slump” in economic activity is elevated.
But what about investors with a longer-term view? We believe a combination of below-average equity valuations, above-average yields, and post-peak private equity vintages will mean stronger long-term returns for diversified portfolios.
After a 26% decline in valuations over the past 12 months, the S&P 500 is now trading at levels consistent with annualized returns in a healthy 7–9% range over the next decade. Yields available in bond markets have improved significantly this year. And in the alternative, growth funds created following public market sell-offs have historically delivered better returns than those from prior vintages.