There are currently three main drivers that make investing in stock at this moment a good opportunity. The first is the fact that we are entering a rate hike cycle. The second is because the S&P 500 has reached correction territory (a decline of more than 10% from its peak). The third and final reason is because the market seems to be very pessimistic on stocks given the first / second reasons and the conflict between Ukraine and Russia.
Completely logical thought process is that investing in stocks during rate hikes is a bad idea. As interest rates rise, they act as gravity against stocks. However, this thinking may be wrong. Since 1954 there have been 13 rate hike cycles. In 12 of those 13 cycles, stocks actually went up by an average of 16% (the exception was during 1972 – 1974). Statistically speaking, this means the odds are in our favor for stocks to increase, not decrease.
As of this writing, the S&P 500 Index has declined over 13% from its peak. The NASDAQ entered bear territory (20% off its record high). This creates an opportunity to buy our businesses at a discount. As I have stated before, on average, this opportunity comes once a year (only every 4 years on avg. for a bear market scenario). If stocks happen to go lower, maybe we did not buy at the best discount but, nevertheless, did buy at a good discount. At some point in the future (no one knows when) stocks will go back up.
The final reason stocks look to be a good investment at this time is because there is wide spread pessimism in the market. The barrel of oil is now trading at over $125, which makes it the most expensive since 2008. Inflation in the U.S. hit 7.5% marking the highest level since the early 80’s. Finally the conflict between Ukraine and Russia has unleashed uncertainty into the markets.
For all the reasons stated above, now would be a good time to put money to work.
Cavallini Capital is currently accepting investors.
Should you be interested, please contact Greg at greg@cavallinicapital.com.
All the best,
Greg Cavallini
Disclaimer: Greg Cavallini, as General Partner of Cavallini Capital, LLP, makes no representations or warranties to investors regarding the probable success or profitability of Cavallini Capital, LLP, and the Track Record, Results and Comparisons set forth herein shall not be used as an expectation on benchmark for any new investments or ventures.