I came across the below funny map of Europe according to Vladimir Putin in 2014 by author Yanko Tsvetkov of Atlas Prejudice. In a blog post, he wrote about how humor has morphed into horror in 2022. Putin’s view of Ukraine at that time is also shocking as the author has marked it as “EuroFascists”. The same false narrative is used by Russia in its ongoing war on Ukraine.
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Source: Atlas of Prejudice by Yanko Tsvetkov
Growth stocks are getting hammered this year for good reason. In a rising interest rate environment growth stocks perform poorly relative to value stocks. When rates increase investors are reluctant to pay premiums for companies whose profits are projected in the future. Companies with no earnings but great ideas or projections fare even worse. Many such firms that became darlings during the past two years are already down significantly.
Below is an excerpt from an excellent article by Eric Savoie at RBC Global Asset Management:
Growth stocks underperformed amid rising interest rates
One of the major equity themes so far this year has been the underperformance of growth stocks given their heightened sensitivity to changes in interest rates. The S&P 500 growth index is down 17% year-to-date and very close to its March low, whereas the S&P 500 value index is only down 2.6% year-to-date and remains relatively close to its record high. As interest rates rise, investors are less willing to pay up for the promise of much higher profits generated by growth stocks far out into the future and prefer more attractively priced value stocks (Exhibit 12). That said, even though growth stocks have faltered relative to value stocks, the recent pullback pales in comparison to the significant gains generated by growth stocks over the last several years. Growth stocks could continue to come under pressure in an environment where central banks remain hawkish, inflation proves more difficult to calm and yields push even higher.
Source: Investors on edge as central banks buckle down to fight inflation and rates rise, RBC
With interest rates projected to rise further thru the rest of the year, growth stocks are likely to be more volatile and decline. Unprofitable companies are best avoided.
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Many emerging markets have held up well so far this year relative to their developed world peers. These markets are performing well for many reasons including rising commodity prices. Countries such as Brazil, Chile in Latin America, South Africa in EMEA and Malaysia in the Asian region are in the positive year-to-date.
With that said, some investors may be wondering which markets are cheap now. A recent article at Schroders noted that countries such as Chile, Colombia, South Africa, Poland, etc. are cheaper based on 12-month forward P/E.
The expensive and cheap emerging markets:
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Source: Is Mexico’s resurgence losing steam?, Schroders
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The BBC published an article last on the gun culture in the U.S. The article listed many shocking facts. The following are three charts from that piece.
The U.S. is the top civilian gun-owning country in the world with a ratio of 120.5 firearms per 100 residents. The second top country in the ranking is Yemen, where a civil war is currently in progress. Among the developed countries, Switzerland has the next most gun ownership.
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Unlike Switzerland, a total of 45,222 people died from gun-related injuries in the US in the year 2020.
Another shocking fact is that nearly 53 people are killed each day in the country, according to CDC data. 79% of all murders are carried out with guns. This is the highest figure when compared to three other developed countries. Canada is the next worst.
Source: America’s gun culture – in seven charts, The BBC
Intra-year declines in the equity markets are a common occurrence. At the risk of stating the obvious, stocks never only go up always. In any given year, stocks decline significantly though the course of the year for any number of reasons but end up the year with a positive total return. Stomach-churning volatility can shake the conviction of even the most patient investors.
The following chart the intra-year declines for the S&P 500 and the yearly total returns for the S&P 500 index from 1980 to 2021:
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Source: Alliance Bernstein
During the period shown, the S&P has had negative returns for the year less than 10 times. Moreover consecutive down years in a row are rare. The last time this occurred was after the dot-com implosion.
The key takeaway is that returns for the whole year is what matters. Not the intra-year declines.
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