Smart Thought Of The Week: Stalwarts


It didn’t take long for the market to turn bearish. So much for the rally that we saw at the end of 2023. In the blink of an eye, traders decided that their bullish bets on half a dozen rate cuts in 2024 were probably a bit over the top.

So, they quickly swung from an aggressive risk-on stance to a defensive risk-off position. They piled out of shares in their droves and sought solace in bonds, the US dollar, and gold. However, it didn’t take much for them to swing back in the other direction. We shouldn’t be too surprised if the market should backtrack again.

But here’s the thing – nothing much has changed apart from market sentiment. And over the next few weeks, we should be able to gauge for ourselves as scores of companies step forward with their quarterly report cards. There will be some that have performed well and some that have done less well. Guess what? That is only to be expected, given the series of shocks that have reverberated around the world.

However, watch out for commentators who will latch onto whichever set of results that happens to fit their narrative best. Confirmation bias can be as dangerous as it is naive. As investors we need to be neither overly optimistic or abjectly pessimistic. We need to be realistic.

Sure, things are starting to look more normal at a superficial level. But the scars from COVID could still take years to heal. Unfortunately, though, the recovery from the pandemic has been hampered by geopolitical tensions and regional conflicts that are now showing signs of spreading. 

The last thing that the world needs is another war to compound the difficulties of an already-fraught economic recovery. But we can’t rule that out entirely, as some countries could lean heavily on patriotism, protectionism and nationalism to hide their inability to engineer a proper economic recovery. And in the process, they are prepared to beggar thy neighbour. 

The upshot is that inflationary pressures could remain elevated if not worsen, which could make it harder for central banks to lower interest rates. Consequently, it is never a bad idea to look for companies with pricing power. It can be the secret ingredient behind why great companies remain great.

Nothing says more about a business that can raise prices effortlessly in the face of inflation. They should be the stalwarts of any portfolio.

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