By Charlie Morris – Fleet Street Letter (Great Britain) – In early 2016, I wrote about the momentum crash.
At the time, there was concern about a bear market. While still cautious, I took the view that the most distressed areas of the market were already heavily oversold and would recover.
There were widespread fears over deflation and the consequences saw weakness in the emerging markets, commodities and industrial companies. The market trough was marked by a low for oil at $27 in January 2016. As oil recovered, so did the broader market.
Had it not, the likelihood was that the economy would enter a recession and bring down the broader stockmarket with it.
Yet oil did recover, and that was a signal that demand had troughed and the bear had already run its course. Momentum crashes tend to coincide with a rise in the rate of inflation from low levels.
The cheapest stocks are typically (but not always) hard assets in their various guises (aka value stocks). These subsequently rally faster than the broader market during these times.