A strong economy

The next US Federal Reserve meeting is expected to mean a 50 basis points hike in the Fed funds rate. This is equivalent of a 0.5% interest rate hike and has sparked fear of a still-bigger stock market correction. The Fed has a history of being too hawkish and spurring recessions, which affects markets globally, including here in the UK. Nonetheless, Moore thinks that the US economy is strong enough to handle multiple rate hikes this year. This is backed by strong employment numbers, heavy assets, and positive earnings results. He also believes inflation is close to reaching its peak. Nonetheless, oil remains the biggest issuing affecting consumer prices. The black gold could spark chaos again if it spikes above $100 per barrel.

Moore sees this year’s stock market correction as being short-lived due to the positive economic data coming in. He expects new market highs to come at some point next year. This should happen once inflation cools down and supply chain bottlenecks ease. Unfortunately, that’s where his bullishness ends. He thinks those new highs could be followed by a potential recession soon after, and into early 2024. This is most likely to happen once ‘stagflation’ (High inflation, but slow or no real economic growth) starts to take effect.

Time is my best friend

Will all that deter me from investing? No. There are four cycles in investing — accumulation, mark-up, distribution, and legacy. This was mentioned by Moore in my interview with him. As a young investor, I’m currently in the accumulation phase. This phase is where I see buying opportunities with attractive valuations during a bear market. Moore sees the current US market correction as a buy-the-dip opportunity for me, as I begin to pick up good discounts on mega-cap companies with healthy balance sheets, attractive margins, and pricing power. The tech-heavy Nasdaq in the US is down over 12% so far this year. That presents plenty of opportunities for me to buy shares in big US-listed tech companies such as Amazon, Alphabet, and Microsoft.

My buy the dip strategy

As Warren Buffett once said: “A diversified portfolio with exposure to different sectors is protection against ignorance.” This same advice was alluded to by Moore in our interview. The main takeaway was for me to invest more in a variety of value and dividend stocks. These can include commodities, insurance, and healthcare.

I was also pleasantly surprised to find out that Moore follows a similar buying strategy to mine. And he continued to encourage me to buy the dip. This means buying when I see around a 5% to 10% decline in a specific stock. When I asked him how much cash I should be leaving on the side to buy those dips, he mentioned 15-20% of my investment portfolio.

Ultimately, my purchases would be dependent on my risk assessment during any market fall, of course. But I will be buying the dip in mega-cap companies with excellent fundamentals for my portfolio.

The post Should I buy the dip in this stock market correction? appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

What does the yield curve have to do with a recession?

An economic recession is typically defined as two straight quarters of negative gross domestic product (GDP). This means that the economy is contracting. Many analysts point towards the yield curve inverting as an indicator of an impending economic decline. After all, it has ‘predicted’ seven of the past eight recessions. The yield curve is an indicator of returns from government bonds. These bonds have a maturity date that can range from 1 month to 30 years. Wall Street normally sounds the alarm whenever short-term bonds (2-year) yield a higher return than long-term bonds (10-year), thus inverting the typical yield curve. Investment banks such as Deutsche Bank and Goldman Sachs have even predicted a recession based on this.

Cherry picking

I believe the data surrounding the relationship between the yield curve and an economic recession has been cloudy. Among all the times the yield curve has inverted in the last 30 years, a recession only preceded it three times. As such, I do not believe that three, or even arguably two data points constitutes good statistics. It is worth noting that the 2020 recession was caused by a global pandemic. Going back further, the yield curve had also inverted in 1995, 1996, and 1998, with no recession following. While it is common for a recession to follow after the inversion of a yield curve, it is not absolutely indicative of it.

Current economic data remains healthy and robust. The unemployment rate continues to decline while labour participation heads back to pre-pandemic levels. In addition, PMI numbers continue to expand, and spending patterns continue to show that consumers are in good shape. Most importantly, GDP continues to grow despite high inflation. Therefore, I think the economy is in a strong enough position to absorb the impact of rate hikes by the Fed, although an overly aggressive Fed might spark a recession.

Investing in a safe bet

While I do not know whether a recession will or will not materialise, I do know that Warren Buffett’s investing philosophy has been effective in generating healthy returns over the long term. I will continue to invest in companies with solid fundamentals, strong earnings, and potential for growth. I believe Alphabet checks all these boxes. It has a hybrid nature of being a defensive and growth stock. Its monopoly in the search and advertising space means that although revenue will take a hit, its position in the market is unlikely to get compromised. It also has tremendous earnings potential in an increasingly inelastic service, cloud computing. So whether a recession happens or not, I will continue to invest in companies that have strong fundamentals, such as Alphabet.

The post Here’s why a recession might not actually happen appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

After a meteoric rise in 2020, the NIO (NYSE: NIO) share price has slumped 57% since then, with the stock currently down over 20% year-to-date. However, yesterday saw the Chinese electric vehicle (EV) manufacturer’s share price spike 8% amid the reveal of a new SUV, set for release in April.

So, with the stock currently trading at a slither of its all-time high, is now the time for me to capitalise by adding NIO to my portfolio? Let’s take a look.

Why did NIO rise?

Let’s begin by looking at why the NIO share price spiked yesterday. This was the unveiling of a new medium-sized SUV, officially named the ES7, announced by Qin Lihong, president and co-founder, on Tuesday. Positioned between the ES6 and ES8, the ES7 is based on the firm’s NT2.0 platform, an electric driving system equipped with nearly 20 assisted driving functions. And, with its release reflecting NIO’s continuous expansion, investors clearly took a liking to this news.

Further, if this release follows in the footsteps of NIO’s impressive delivery figures, then it could provide a boost for the firm. Its latest delivery data showed that January deliveries for 2022 represented a 33% year-on-year increase. This was the equivalent of nearly 10,000 vehicles delivered. As a potential investor, these are all positive signs.

NIO share price concerns

However, there are a few issues I see with NIO. One of these is the regulatory pressure it faces within China. The ride-sharing company Didi Global recently delisted from the American markets amid pressure from the Chinese government. And there is the potential this could happen to NIO.

A further concern for me regarding NIO is rising interest rates. As my fellow Fool Dylan Hood highlighted, inflation data came in at 7.5% year-on-year for January in the US. The Federal Reserve is expected to raise interest rates in March. The picture is also similar in the UK, where rates have already begun to rise.

This is an issue for NIO for a few reasons. Firstly, in uncertain times like these, investors tend to switch their money to more stable value stocks, meaning growth stocks (such as NIO) are the hardest hit. It also means the debt NIO has will become harder to pay off, potentially stunting growth.

As the EV market continues to grow, there is also the issue of competition. While NIO has seen large growth since its IPO back in 2018, as more established manufacturers venture into the space, the firm may struggle to compete. A prime example of this is Ford, which recently vowed to be all-electric by 2030. As these firms potentially gain market share, this could have negative connotations for the NIO share price.

What I’m doing

So, while I think NIO’s potential is clear through its impressive delivery numbers, too many issues currently surround the stock. The continuing pressure being applied by regulators provides a constant threat for it. And rising interest rates will load further problems onto the EV maker. I don’t currently hold any shares of NIO, and due to these pressures. I won’t be looking to add any in the near future either.

The post The NIO share price rose 8% yesterday! Here’s what I’m doing appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In fact, the index needs to rise by just under 3% to reach 7,000 points. The last time the FTSE 100 reached such heights was in May 2015, but it only spent a matter of weeks above the psychological 7,000 points barrier before slipping back down.

Today, the FTSE 100 faces greater challenges than it did back then. The global economic outlook is less upbeat than it was in 2015. Certainly, commodity prices have stabilised somewhat and there’s optimism that the oil price will continue the gains it has made in 2016. Furthermore, the Chinese economy is now in a healthier state than it was in 2015 thanks to stimulus measures. However, the overall outlook for the FTSE 100 is tougher now due to Brexit, the US election and perhaps most importantly, US interest rate rises.

Rate rises

On the latter, the FTSE 100 is set to respond negatively when the Federal Reserve raises rates. This may not happen in the coming weeks, but it expected over the next year. The last time the Federal Reserve raised rates, the FTSE 100 responded by plummeting to as low as 5,700 points in the weeks following the decision. While the same level of impact may not take place this time around as it’s not the first upwards move, it could nevertheless cause investors to adopt a more risk-off attitude.

This would be bad news for the FTSE 100. A higher US interest rate could choke off the country’s economic recovery. Since much of the FTSE 100 is made up of internationally-focused stocks, the global economic outlook is arguably more important for them than the prospects for the UK economy.

However, with Brexit being such a major change in both a political and economic sense, those companies in the FTSE that have considerable UK exposure, such as banks and retailers, could find their share prices coming under pressure.

Already since Brexit the wider banking sector has endured a volatile period while the full effects of anticipated rising unemployment are yet to be felt. With the UK economy forecast to grow at only a snail’s pace in 2017 according to the Bank of England, investors may become somewhat nervous about the FTSE 100’s prospects and cause it to miss its 7,000 points level over the near term.

Of course, before the end of the year we will know who the next US President will be. In the run-up to the election it would be unsurprising for investors to take less risk because of the uncertainty that each candidate will bring in terms of their differing policies to the current administration. This could negatively impact on the FTSE 100’s performance between now and the end of the year.

Although the FTSE 100 is just 3% off the 7,000 points level, getting there may not be that easy. In the long run, its future is bright, but in the short term there may be significant volatility and opportunities to buy shares at discounted prices.

The post Will the FTSE 100 return to 7,000 points this year? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.