![\"\"](\"https:\/\/lundgreensinvestorinsights.com\/public\/images\/blobid1636895996474.png\" "\\"Eng")
<\/p>\nThe financial market is back to a comfortable rhythm, with Wall Street setting new records every day. I can feel the optimism among many investors and unsurprisingly, it contributes to a carefree view on further wealth development. The almost daily rise, especially on Wall Street, automatically leads to the question of \u200b\u200bhow long can it go well? Of course, this is a sensible consideration, but another question is whether a major correction is the key question that an investor really needs to deal with?<\/p>\n
There are 1½ month left of this year, and a lot can still happen. The development can include everything, from a huge negative correction in the stock market to those especially American stocks ending the year on their highest ever. If one takes the current price level as a base, then it is the top of the curve in the US stock market when looking into 2022. For this year alone, there is already an increase of 22.5 pct. in the bag. It may cause an investor or two to sink-in extra time when considering the allocation for 2022.<\/p>\n
I think that even just the development in the American S&P 500 index over the past five years is enough to extract some experience from (graph one). If one goes five years back to the end of October 2016 and five year forward, the S&P 500 has returned approximately 125 pct. This is measured in dollars, but as graph two shows, the foreign exchange market has behaved quite calmly during that period. For a European-based investor, the negative currency effect has only been around five pct., thus, a net return of 120 pct. This is considerably more than the Euronext 100 index, which has returned 52.5 pct. during the same period.<\/p>\n
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Even if one doesn’t invest in individual stocks, but focuses on, for example, sectors and geographical areas, then it does matter which eggs one puts in the stock basket. The sector choice is obvious, here, one has to find the growth areas. But the S&P 500 versus Euronext 100 expresses fundamental factors that are nothing new, but typically represents some big gears turning all the time.<\/p>\n
Europe has no Silicon Valley, not even a fraction of the area south of San Francisco, nor is there any prospect of any areas in Europe developing towards that direction. Even though the US economy is larger than the Eurozone, I consider the Americans to be significantly more flexible, and I do not see any change here either. Both are examples of elements that have a significant impact on the long-term development of the stock markets.<\/p>\n
For years, I have been arguing that investors in the geographical allocation should underweight the Eurozone. Even with the very large difference in the returns on the two mentioned stock indices, I see no reason to change the recommendation of an underweighting of the Eurozone, even when looking into 2022. The only thing should be an adjustment if US stocks start to have too high a weight in the portfolio.<\/p>\n
However, I understand the concern about a correction in the US stock market. It could be 20 pct. and can come out of nowhere, which however, requires that the stock market is decidedly overvalued. My own decades-long experience is that a correction of a significant size is incredibly difficult to predict, and moreover, the timing must be completely perfect. A scenario often experienced is that investors could be right about a correction of 15 pct., but the stock market manages to rise another 30 pct. before the correction materialises, leading to a bad net result.<\/p>\n
![\"\"](\"https:\/\/lundgreensinvestorinsights.com\/public\/images\/blobid1636896022363.png\" "\\"Eng")
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If one really does catch and anticipate a major correction at the beginning of the movement, then it is only natural to react to the development, thus reducing risk accordingly, I will of course, by no means encourage to passivity. I see the risk of a correction as more imminent than it has been, but conversely, it is also the risk as I assess it right now – not fiery but located at the outer edge of the radar screen.<\/p>\n
When I look into 2022, the demanding assessment is whether the aforementioned big gears will continue to turn at the speed that is priced in the stock markets. In the Eurozone, the EU Covid-19 growth package will have an effect at some point, but the risk is that investors will look through the help packages, and not assess that the aid has a long-term positive effect on the stock market.<\/p>\n
The primary focus once again ends up being on Wall Street, and here, I do not mean that one should underestimate the risk that the expected economic recovery in the US could be postponed, or even fade out.<\/p>\n
In addition, there is the risk of increasing investor concern about whether the US authorities will take action against some of the large tech companies. My assessment right now is that the biggest risk to the U.S. stock market for next year is if investors will worry that Wall Street simply is losing momentum, which throughout 2022, could cause investors to reduce their stock allocations in pursuit of returns elsewhere.<\/p>\n","protected":false},"excerpt":{"rendered":"
There has been some fear for a major correction in the stock market throughout 2021, but the real risk could look different.<\/p>\n","protected":false},"author":205,"featured_media":6262,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false},"categories":[1],"tags":[42],"yoast_head":"\n