At the end of last year, we imparted our beliefs that the markets were overvalued and needed a pullback to get to a more reasonable market valuation. As an aside, pullbacks are very a healthy and normal process that we see in markets quite often.
Unfortunately, some exogenous global events added fuel to the fire. With the unexpected re-lockdown of China (a major supplier of goods to the world) the big sticker shock of inflation and the Russia/Ukraine war (wheat), you get a more emotional response (fear) to financial markets. Given the higher interest rates and the trajectory of the fed raising rates and over- valued stock valuations combined with outside geopolitical factors, the markets are now down more than expected.
After several weeks of downturns, stock valuations are back within a very normal range. We also believe the higher interest rate trajectory is already baked into the market. In addition we assume the China Lockdown and the worst of the Russian/Ukraine war are behind us. Given these factors and the current valuations, GGA believes the markets have 10% upside into the end of the year from today’s projected lower opening. Our target is based on historical fundamental analysis. At the moment, Wall Street has a much higher target.
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