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Near Capitulation in US Equities

By July 6, 2022Blog

The key US equity markets made new lower lows in mid-June confirming an ongoing bear market. Under the rules of Dow Theory for the 21st Century, a technical indicator we follow on US equity markets, the speed and extent of the sell-off meant that Capitulation almost occurred. We have seen share price declines across the board accompanied by continuous negative news flow related to the economy and interest rates which can unnerve investors and make one look for the exit.

As the old saying goes, history doesn’t repeat itself, but it does rhyme. By late 1999, most of the developed equity markets were at extreme valuation levels. Today, most equity markets are offering sensible if not good value. It is just the key US equity markets that got to extremely overvalued levels relative to history. As evidenced by Cathy Wood’s ARK Innovation ETF, which is down 75% over the past 15 months, a lot of the speculative activity has already been wrung out of US equity markets.

Currently, the difficulty for markets is that inflation remains high and attempts by central banks to reign inflation in seem timid when interest rates are starting from zero. With government fiscal deficits looking like the norm, investors are guessing that inflation may stay relatively high, so that central banks’ attempts to control inflation will add to the pressures on consumer demand, thus leading to a recession. And recessions knock corporate earnings, so that as yet investors don’t have confidence that the current lower price-to-earnings ratios outside the US are real.

It’s tempting to sell positions to stay on the sidelines. But an investor who sells today must also get back in before the recovery starts. At GillenMarkets, we believe it is best to follow a sound investment plan of owning sensibly priced assets and avoid using debt. Quite simply, it’s the best route to achieving the better returns that equity markets offer over time and it’s how we guide our investment clients. If our Wealth Management services are of interest to you, click the link or contact us directly at or at 01 287 1400 to talk to one of our advisors.