The rising cost for companies to do business may continue to rise in the foreseeable future given the concerns from companies who reported in August. Headwinds such as inflation still exists as evidenced by the Federal Reserve lifting rates by 0.75% last week. Despite this, there is always a bull market somewhere, you just have to know where the best ASX investments are. Generally, the best investments are in the best sectors that are already outperforming the index (ASX code XJO).
What some investors may not know is, with the Fed raising rates, this makes companies with current real earnings more attractive. For example, if a growth company is promising earnings three years from now, with rates being higher, it’s more expensive if an investor waited for those earnings to come through. This is why the attractiveness shifted from those high PE or no earnings stocks to lower PE higher earnings stocks, which precisely explains the sector rotation out of those growth stocks with no earnings into those stock that had accelerating real earnings i.e. energy, coal and lithium producers. Granted, in times of turmoil, there is always a flight to safety which is why we have seen funds move into some of those defensive areas like utilities, consumer staples and healthcare. Although sector rotation will continue when we see a peak in both interest rates and bond yields so it will be prudent for investors to adjust their portfolios accordingly.
Stocks Usually Go Up, But The Market Is Rarely In A Major Uptrend
If you look back in every decade, the market is in a major uptrend (a confirmed rally) 1/3 of the time whilst 2/3 of the time the market is either trending down or sideways non-trending. This means patience, timing and discipline are crucial for taking advantage of future winners. If you get it right, the compounding form just one monster stock during a 600-point uptrend can be mind-blowing.
Looking To The Future
The bottom line is, we never have perfect information, so stock prices can never be accurately predicted. Given this, understanding how the market and stocks work is crucial and makes all the difference between those who succeed and those whose accounts get wiped out. To avoid missing key turning points in the market, get in touch with an investment firm who will put the odds in your favor. Contact MF & Co. Asset Management as they are the top leading name in the industry today. For more details on the best ASX investments, you can visit their official website.
Also, read about the Top ASX Stocks to Buy | A brief guide for 2022