Lars Söderfjell, Head of Equities at the Bank of Åland, makes an analogy with favorable winds at sea:
— It’s not like we run with mainsail and spinnaker, but at least we have a full rig.
Sees low risk of new bottom nipples
To find a cheaper stock market, you have to go back to really serious crisis situations, such as the pandemic outbreak in 2020 or the euro crisis in 2011-2012, according to Söderfjell. The stock exchange’s so-called P/E ratio – which indicates the price of the shares in relation to future years’ expected profits – is now down to 13.7. This can be compared with the average over the past ten years of 16.4.
“The P/E ratio is now 17 percent lower than the ten-year average,” he notes.
Although it is not a straight upward line he sees in front of him. Instead, rather rough seas await those who venture into the financial market in the coming months.
“It can probably go up and down by 5 percent from these levels,” he says.
“It’s not like we run with mainsail and spinnaker, but at least we have a full rig,” says Lars Söderfjell, equity manager at the Bank of Åland, about the strategy on the stock market right now. Archive image.
But he sees the risk of new lows as low. According to Söderfjell’s chart, the stock market bottomed out last fall and now the trend is upward – in line with the 15 percent price rise on the Stockholm Stock Exchange over the past two months.
Maria Landeborn, senior strategist at Danske Bank, also notes the increasingly positive signals for stock market speculators.
— Inflation has finally come in a little lower than expected, both in the US and Europe. The mood among consumers has also improved a little, albeit from low levels, she says.
Don’t want to blow the danger over
She also notes a bounce upwards for the purchasing manager index from Europe.
— Then we have the fact that the central banks are still starting to approach the end of the cycle of interest rate increases. Most will probably pause sometime in the first quarter of 2023, says Landeborn.
Although she absolutely does not want to overstate the danger of new broad stock market falls. On the contrary. A higher interest rate than in many years and continued problems with inflation are expected. According to Landeborn, it will hit more cyclically sensitive companies than the market currently expects in the pricing of the stock exchange.
“The money you put into the stock market now should be prepared for the fact that it may vary in value in the future – so that you don’t need it in the summer,” she says.
Maria Landeborn, senior strategist at Danske Bank, sees a risk of new stock market declines in 2023 when the economy slows down. Archive image
The rule of thumb says that it takes 6-12 months to fully see the results of how the strong and rapid interest rate increases that have been made during the year hit demand and growth. And there are still some increases for both the Riksbank and the colleagues in Washington and Frankfurt.
“I think concern will increase again”
— I think the anxiety will increase again – when you see that demand is subdued, the economy slows down, the risk of becoming unemployed increases, people’s electricity bills rise and consumption decreases. It will be a hit with the companies, says Landeborn.
In addition to a continued troubled stock market, Swedish households must also expect continued inflation and significantly higher costs for mortgages, according to Landeborn.
“I think that will affect wallets and consumption more when we enter next year,” she says.
The Riksbank is expected to continue raising the policy rate to upwards of 3 percent until the beginning of 2023, and mortgage rates continue to rise.
— And you should probably expect that the mortgage will be expensive for some time to come. The question is whether it will return to these low interest rates we have had. It is probably doubtful, as it looks now, says Landeborn.