‘Run Road’ (or in Chinese known as 跑路) is a layman term to describe the act of ‘dropping everything and just run away.’

This is the exact scenario happening in the stock market right now, where many dumped their stocks out of extreme fear (that a recession is coming and their stocks could potentially lose even more) and in so doing, ended up burning a BIG hole in their pockets.

Question: Is this a sensible thing to do, and more importantly, for those who are still holding on (to your stocks), should you also follow the crowd to dump everything and ‘run’?

In this post, you’ll find my analysis about the current situation, outlook ahead, and also what I would do (both as a long-term investor, as well as a short-term swing trader):

Current Situation

Unless you have been living under a rock, I’m sure you should be aware of all the headwinds that’s causing the market to tumble this year – some of the major events include Russia’s invasion of Ukraine (and this lead to an energy crisis), China’s insistence on ‘Zero Covid’ (which led to severe supply chain disruptions, with demand outstripping supply and caused a rise in the price of goods), deterioration of relations between the world’s 2 biggest superpowers – China as well as the United States of America, along with the Federal Reserve’s hawkish outlook to bring inflation back down to 2%.

Speaking of the Federal Reserve’s interest rate hikes, so far, we’ve seen a total of 5 interest rate hikes in 2022, as follows (and following every interest rate announcement, the market fell by a certain percentage):

March 2022 – +0.25bps
May 2022 – +0.50bps
June 2022 – +0.75bps
July 2022 – +0.75bps
September 2022 – +0.75bps

Particularly, following yet another 0.75bps of interest rate hike announced in late-September, along with Fed’s continued hawkish outlook (and determination to bring inflation down to 2%), the US and Singapore benchmark indexes took another tumble:

STI:

Following Fed’s interest rate decision on 22 September 2022, the STI tumbled by another 132.83 points, or 4.1% (from the close of 3,263.08 points on 21 September 2022 to the close of 3,130.25 points on 30 September 2022.) In fact, the STI fell into the correction market on 29 September 2022 before climbing back out of it the following day.

S&P 500:

For the S&P 500, it fell by another 204.33pts, or 5.4%, following Fed’s latest interest rate decision (from 3,789.94pts as at close on 21 September 2022 to 3,585.61pts on 30 September 2022.) Also, as you can see from the chart above, the S&P 500 is currently in a bear market.

Dow Jones:

Compared to the S&P 500 index (which we looked at moments ago), the Dow Jones also fell by a similar degree (of 1,458.27pts, or 4.8%) to close at 28,725.52pts as at close on 30 September 2022 (from 30,183.79 as at close on 21 September 2022) – the fall also led to the US index falling into a bear market.

NASDAQ:

As you can see from the chart above, the NASDAQ index is deeply entrenched in a bear market – following Fed’s latest interest rate announcement, the index tumbled by another 644.57pts, or 5.7% – from 11,220.19pts as at market close on 21 September 2022 to 10,575.62pts as at market close on 30 September 2022.

Outlook Ahead

Right now, we are in the final quarter of the calendar year 2022 – will we be able to see a ‘Santa Rally’ (where the market goes on a bullish run all the way to the end of the year) this year?

Personally, it will depend on a couple of factors:

(i) Companies’ Latest Quarterly Results & Outlook – We’ll be expecting companies to release their financial results for the latest quarter starting from the 2nd half of October – and depending on the results released, along with outlook provided by the management, we could see some volatility in the market; personally, I am of the opinion that many of the companies’ results will be a mixed bag – meaning to say we are likely to see an improvement in revenue, but a decline in net profit (due to increase in costs.) Outlook-wise, I’m not too optimistic of a positive outlook due to all the headwinds (which I have mentioned in the earlier on in this post) still very much present;

(ii) Fed’s Interest Rate Decision – The next Fed interest rate decision will be in the first week of November (consensus is that the Fed will hike interest rates by another 0.50bp), with another one in December (and consensus is that the Fed will hike interest rates by another 0.25bp) – if the Fed were to hike by more than that, the market will definitely react very negatively to it; markets will also plunge if the Fed were to maintain its hawkish stance and continue to hike interest rates aggressively in 2023. On the other hand, if the Fed were to signal a slowdown in interest rate hikes in the coming year, the markets will cheer and we could see some recovery;

(iii) Major Events – I do not foresee any improvements in the Russia-Ukraine front, nor improvements in relations between the United States and China before the end of the year; The only thing that could happen though would be China’s relaxation on its current Covid restrictions, and resumption of normal business activities – supply chain issues will see a relief as a result, and markets will definitely cheer to this.

What am I Going to Do as a Long-Term Investor?

Definitely, I’m going to stay invested in the companies I currently am invested in (you can check out a list of companies I am invested in here.)

Why? Because the business fundamentals of the companies I’m invested in still remains intact (I do follow news of the companies I’m invested in very closely to keep abreast of any latest developments) – in fact, I’m currently looking to increase my shareholdings in some of the companies to bring down my average invested price (and in so doing, bring up my yield.)

That said, some of you may be concerned by the potential impact to distributions by the REITs as a result of interest rate hikes and would like to know of my thoughts – as far as I am concerned, many of the REITs I’ve invested in have a lot of their borrowings hedged to fixed rates (more than 70%) and as such, any near-term risks as far as interest rate hikes is concerned is mitigated.

What am I Going to Do as a Short-Term Swing Trader?

This has been an extremely tough year as far as trading is concerned – in fact, I’ve lost money from a huge majority of my trades this year as a result of volatility (and many of my trades were stopped out, and I’m not afraid to say that – I do not want to paint a rosy picture and tell you that everything is ‘well and good’ when it is not) – a sharp contrast to last year, where I’ve made profits from most of my trades.

Also, if you were to look at the share price movements of many companies (be it Singapore- or US-listed), many of them are currently in a downtrend, and showing no signs of a reversal (at the time of writing of this post), suggesting that the bears are firmly in control of the market currently.

Now, some of you may be thinking of going ‘short’ – either doing a ‘naked short’ (meaning to sell first and then buy back at a lower price later), or you can go ‘short’ through trading DLCs (Daily Leverage Certificates), or through ‘put’ options (in the US market) – but do take note that the market is way ‘oversold’ already, and I personally would see a rebound anytime (due to bargain hunters coming back in to buy stocks once again on the cheap), so you will need to be extra careful if you are thinking of going ‘short’ at this juncture.

Personally, unless I see signs of a rebound coming up (from candlestick patterns, as well as various technical indicators), I will be refraining from embarking on short-term swing trading (to go ‘long’) for now.

Closing Thoughts

Bears are certainly in full control of the market right now – that said, the market (be it the Singapore or the US market) is way ‘oversold’ right now and from a technical analysis point of view, I foresee a rebound coming up soon (with bargain hunters coming back in to buy stocks at discounted price) – but as to when exactly will the rebound come, and how long will this rebound last, your guess is as good as mine.

As to whether there will be a ‘Santa Rally’ this year, a lot will depend on (i) upcoming results release, along with outlook, by companies; (ii) interest rate decision in November, December, along with Fed’s guidance for the coming year 2023 in the months ahead.

While I certainly hope for the very best (in that a ‘Santa Rally’ will happen this year, and I can make some profitable short-term swing trades), but at the same time, I’ve planned for the very worst as well (continue to monitor for opportunities to further average down my long-term holdings.)

With that, I have come to the end of my my share today on what’s causing the market to tumble, outlook in the months ahead, and what I’m doing both as a long-term investor, as well as a short-term swing trader. Do take note that everything you’ve just read in this post is purely for educational purposes only. They do not imply any buy or sell. Please do your own due diligence before you embark on any investing or trading decisions.